By Staff Reporter
KARACHI: The Asian Development Bank cut its growth forecast for developing Asia and the Pacific, citing deeper-than-expected damage from Middle East energy disruptions, even as it left Pakistan’s outlook unchanged for a second straight quarter.
The Manila-based lender now sees the region expanding 4.9% in 2026, down from 5.5% last year and 0.2 percentage point below its April estimate, according to the Asian Development Outlook released Thursday. The bank kept its 2027 forecast at 5.1%, anticipating a recovery as energy-market pressures fade.
Pakistan’s economy is projected to grow 3.7% in the fiscal year through June, matching the ADB’s prior call. Inflation will run hotter than the government expects, the bank said, forecasting 8.3% for the period — a marked jump from the 7.2% pace it had penciled in for the prior fiscal year.
The report underscores how the conflict in the Middle East continues to ripple through Asian economies eight months after fighting began, disrupting not just oil and gas flows but fertilizer supplies, broader commodity markets and shipping routes. A framework agreement signed in June has yet to translate into meaningful relief, the ADB said, and any unwinding of the disruption will likely be gradual.
Regional inflation is now seen at 4.3% this year, up from 3% in 2025 and 0.7 percentage point higher than the April call. The 2027 inflation forecast holds at 3.4%.
“Durable implementation of the framework agreement would help normalize global energy markets, but the pace of adjustment is highly uncertain, with significant downside risks,” ADB Chief Economist Albert Park said in the report. “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.”
Risks Skew to the Downside
The bank flagged renewed conflict escalation as the chief threat to its outlook, warning that a re-intensification could tighten energy markets further, push up risk premia and deepen both inflationary and external pressures across the region.
Tighter global financial conditions present a separate risk, the ADB said, pointing to rising sovereign bond yields and borrowing costs alongside fiscal deficits that are projected to widen in several economies. Elevated tariffs and trade-policy uncertainty could weigh further on activity, while higher fertilizer prices threaten agricultural output and food security across the region.
China Steady, India Marked Down
The downgrade was broad-based across subregions, with developing East Asia the lone exception. China’s growth forecast held at 4.6% for 2026 and 4.5% for 2027, with the ADB citing resilient exports and continued infrastructure spending as offsetting factors.
India’s forecast was cut to 6.6% for the current year as higher energy costs sap domestic demand, though the bank left its 2027 projection unchanged at 7.3%. Southeast Asia and the Pacific also saw reduced growth estimates, which the ADB attributed to softer domestic demand and tourism, rising inflation, and higher import costs.
For Pakistan specifically, the ADB’s outlook points to a fragile balance: growth holding near 3.7% even as inflation risk builds, with the bank’s country-level commentary flagging elevated fiscal and external-account pressures tied to the same global energy dynamics weighing on the broader region.
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