The Asian Development Bank (ADB) has downgraded its economic growth outlook and raised inflation forecasts for Asia-Pacific, as prolonged disruptions caused by the US-Iran war continue to raise energy prices and weigh on economic activity.
The ADB is now forecasting regional growth of 4.7pc this year and 4.8pc in 2027, down from projections of 5.1pc for both years made in its Asian Development Outlook April 2026 report.
Inflation in the region is now forecast to rise to 5.2pc this year from 3pc last year, before easing to 4.1pc in 2027.
The ADB's previous forecast, released in April, was based on assumptions finalised in early March, about a week after the war started, and envisaged an early stabilisation of the conflict.
The revised outlook takes into account prolonged risks to energy production and transport routes, as well as continued pressure on oil and gas prices. It assumes that spot Brent crude prices will average around $96/bl in 2026 before easing to around $80/bl in 2027. This is substantially higher than pre-war levels of around $69/bl in January and February.
"We are confronting systemic, long-lasting disruptions to global energy and trade networks, not just temporary volatility," said ADB's president Masato Kanda.
If the conflict escalates further and oil prices move higher, growth in Asia-Pacific could slow further to 4.2pc this year and 4pc next year, while inflation could hit 7.4pc this year, the ADB said.
Crude futures have risen strongly in recent days. The front-month June Brent contract on the Ice exchange traded as high as $126.41/bl on 30 April, surging by over 7pc from the previous close. The new July contract traded at $110.35/bl at 3:30pm Singapore time (07:30 GMT) today. Brent futures were trading at around $60-70/bl for most of January-February, before the war began.
Demand reductions
Governments should focus on cutting energy demand where possible, the ADB said. Some of the recommended measures, such as limiting air-conditioning and encouraging working from home, have already been implemented in countries including the Philippines and Singapore.
Policies should also focus on stabilisation, instead of the suppression of price signals, the ADB said. "Allowing higher energy prices to pass through, at least in part, can encourage energy conservation, fuel switching, and investment in alternative energy sources," it said.
Meanwhile, central banks should try to limit excessive market volatility. Aggressive policy tightening could worsen growth headwinds and exacerbate financial volatility. Some tightening may be warranted, "but anchoring inflation expectations with effective central bank communication will remain key," the ADB said.
