Prolonged Middle-East conflict could cut economic growth in developing Asia and the Pacific by up to 1.3 percentage points in 2026-2027 and push inflation higher by 3.2 percentage points if energy disruptions last over a year.
Such forecast comes from the Asian Development Bank (ADB), as the US-Israel war on Iran and oil blockades continue.
Higher energy prices, supply-chain disruptions, tighter financial conditions, and potential setbacks to tourism and remittances would weigh on regional economies, according to new research by the ADB, released Thursday.
The Manila-based development partner says the impact will largely depend on how long the disruptions last, with short-lived tensions having limited effects while "prolonged shocks could cause deeper and more persistent damage".
Adverse effects on growth will be most severe for economies in developing Southeast Asia and the Pacific, with inflation rising highest in South Asian economies. The bank notes that the outlook remains highly uncertain and depends on evolving geopolitical developments.
"Prolonged energy disruptions could force economies in developing Asia and the Pacific to navigate a difficult trade-off between weaker growth and higher inflation," ADB Chief Economist Albert Park has said in a statement.
The ADB chief economist urges governments to contain market stress and protect vulnerable groups while strengthening long-term resilience.
The bank recommends allowing partial pass-through of higher energy prices to encourage conservation, providing targeted and time-bound fiscal support, maintaining careful monetary policy to anchor inflation expectations, and adopting demand-management measures such as energy-saving campaigns and increased public transport use.
The ADB, founded in 1966 and owned by 69 members, supports sustainable and inclusive development across Asia and the Pacific.
The ADB also warns that South Asian countries, including Bangladesh, could face lower remittances from the Middle East as the ongoing conflict in the region weakens labour demand and squeezes migrant worker incomes,
"Weaker economic activity in conflict affected Gulf economies could reduce labour demand and incomes of migrant workers, leading to lower remittances," the bank explains.
It also says a remittance shock could compound the effects of higher energy prices and tighter external financing conditions by simultaneously weakening foreign-currency inflows and household demand.
"This channel is especially important because remittance dependence does not always align with exposure based on trade or energy indicators, and may therefore represent an additional source of macroeconomic vulnerability," the ADB noted.
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