The Asian Development Bank (ADB) has revised its economic growth forecast for developing economies in Asia and the Pacific downward to 4.9% for 2026, down from the 5.5% growth recorded in 2025. This marks a reduction of 0.2 percentage points from the projections released in April, according to the latest Asian Development Outlook (ADO) July 2026 report.
Energy Market Disruptions Drive Downgrade
Prolonged disruptions to global energy markets, stemming from the ongoing conflict in the Middle East, have weighed more heavily on the region's economic prospects than previously anticipated. The ADO report noted that these disruptions are expected to unwind only gradually despite a framework agreement signed in June. The economic fallout has expanded beyond energy sectors to impact fertilizers, commodity prices, and broader supply chains, keeping inflationary pressures elevated.
Consequently, regional inflation is now projected to hit 4.3% this year, an upward revision of 0.7 percentage points from the April forecast.
ADB Chief Economist Comments
ADB Chief Economist Albert Park stated, 'Durable implementation of the framework agreement would help normalize global energy markets, but the pace of adjustment is highly uncertain with significant downside risks.' He added, 'Economic growth in developing Asia and the Pacific remains resilient, but persistent headwinds caused by the conflict require a careful policy balance between supporting growth and containing inflation.'
Downside Risks and Regional Impacts
The report warned that any renewed escalation of conflict or prolonged geopolitical uncertainty could further tighten energy markets, increase risk premia, and intensify both inflationary and external pressures. Tighter global financial conditions are raising sovereign bond yields and borrowing costs, which is projected to widen fiscal deficits across several regional economies. Rising fertilizer prices also continue to threaten agricultural output and food security, while elevated trade policy uncertainty and higher tariffs pose additional risks to economic activity.
Subregional Growth Projections
Growth projections for 2026 have been reduced for most subregions, with developing East Asia being the sole exception. Projections for the People's Republic of China remain unchanged at 4.6% for 2026 and 4.5% for 2027, driven by infrastructure investment and strong exports. Conversely, India's growth forecast was revised downward to 6.6% for this year as higher energy costs dampened domestic demand, though its 2027 forecast is maintained at 7.3%. Growth outlooks for Southeast Asia and the Pacific were also trimmed due to weaker domestic demand, declining tourism, rising inflation, and escalating import costs.
2027 Outlook
Meanwhile, the growth forecast for 2027 across the broader region is maintained at 5.1%, reflecting an expected recovery in economic activity as these compounding geopolitical and inflationary pressures begin to ease. The inflation forecast for 2027 is similarly expected to moderate to 3.4%.
