ADB cuts Asia-Pacific growth forecast amid Middle East crisis

Tashkent, Uzbekistan (UzDaily.com) — The Asian Development Bank (ADB) has revised downward its economic growth forecasts for the Asia-Pacific region, citing the escalating impact of the Middle East crisis.

Speaking at the ADB annual meeting in Samarkand, ADB President Masato Kanda said the bank now expects regional growth to slow to 4.7% this year, down from an earlier projection of 5.1%. In a worst-case scenario, growth could fall further to 4.2%.

Kanda identified the Middle East conflict as the primary driver of the downgrade, noting that the region has been more severely affected than initially anticipated. Asia-Pacific economies remain heavily dependent on energy imports routed through the Persian Gulf and the Strait of Hormuz. Japan sources around 95% of its fuel through this corridor, while Southeast Asian countries rely on it for approximately 60% of their energy needs. In smaller island economies such as the Maldives and Tonga, fossil fuel imports account for up to 10% of GDP.

The energy shock has triggered cascading effects across multiple sectors. Fertilizer prices have already risen by 50%, which is expected to push up food costs. Remittance flows — accounting for as much as 88% of GDP in some economies — are also under pressure, including in countries like Pakistan.

Tourism hubs in Dubai, Doha, and Abu Dhabi are experiencing disruptions, affecting travel-dependent economies such as the Maldives, Sri Lanka, and Thailand. Regional stock markets have declined by an average of 3%, bond yields have risen by 28 basis points, and capital outflows have reached approximately $28 billion.

Inflation forecasts have been revised more sharply. From 3% last year and an initial projection of 3.6% for this year, ADB now expects inflation to rise to 5.2%, with a potential surge to 7.4% in the event of further escalation.

Kanda emphasized that the current crisis differs fundamentally from the COVID-19 pandemic, describing it primarily as a supply-side shock concentrated in the energy sector. He noted that the scale of disruption to oil and gas supply chains is unprecedented and could result in prolonged recovery periods.

In response, ADB has introduced a comprehensive financial support package. The bank has launched a rapid resource reallocation mechanism to redirect funds from existing programs, enabling immediate crisis response. It is also expanding trade and supply chain financing for the private sector, allowing disbursement within 24–48 hours to support imports of fuel, food, and medicine.

Additionally, ADB is increasing budgetary support to governments through policy-based lending and countercyclical financing to help sustain essential social spending.

The bank has also implemented structural reforms to enhance its capacity. Amendments to its charter have lifted previous lending limits, increasing its overall lending capacity by 50%. In 2025, ADB approved a record $29 billion in commitments, up 20% year-on-year, with total financing reaching $44 billion including co-financing.

Among key policy changes, ADB has for the first time allowed financing for nuclear energy projects and introduced mechanisms to support critical supply chains. The bank has also reached an agreement with the World Bank on mutual recognition of systems and standards to streamline project implementation.

Kanda noted that the crisis reflects a broader period of global instability, describing it as the most severe test of the multilateral system since 1945. Despite this, he expressed optimism about the ability of economies to adapt through innovation and cooperation.

Looking ahead, ADB continues to prioritize long-term initiatives, including a $50 billion regional power grid program aimed at integrating 20 gigawatts of renewable energy capacity and providing reliable electricity access to 200 million people by 2035.