Energy prices are rising and financial conditions are worsening due to the fallout from the Iran war, raising the likelihood that growth in the Asia-Pacific (APAC) region will slow and inflation will climb.
On the 30th (local time), the Asian Development Bank (ADB) cut its forecast for the region's economic growth this year to 4.7% from 5.1% and next year to 4.8% from 5.1%. The upward pressure on energy prices from the Iran war, tighter financial markets, and slowing trade are acting in combination. At the same time, it sharply raised its 2026 inflation forecast to 5.2% from 3.6%.
Kanda Masato, president of the ADB, called the revision a "significant downward revision," noting that it "reflects structural and long-term shocks across global energy and trade networks, not a temporary fluctuation." In practice, the war's fallout is pushing up crude prices, which is lifting production and transportation costs, and that is feeding into higher consumer prices and a slowdown in the real economy.
The APAC region is especially vulnerable to this war because it is the world's largest energy-importing region and a hub of global manufacturing and trade. According to an ADB report, major countries such as Korea, Japan, China, and India have high dependence on energy imports and are large net importers of crude oil, refined products, and natural gas relative to gross domestic product (GDP). In addition, more than half of the naphtha brought in by Asian maritime transport passes through the Middle East. Manufacturing is also structured to source chemical feedstocks, fertilizers, pharmaceutical ingredients, and semiconductor parts just in time, making it more sensitive to external shocks.
The ADB warned that the shock could intensify if the U.S.-Iran conflict escalates. If oil prices surge after May and stay elevated, growth in developing countries in Asia could slow to 4.2% this year and 4.0% in 2027, and inflation could spike to 7.4% this year, according to the outlook.
In its report, the ADB advised countries to manage energy consumption while accelerating diversification of energy sources. In particular, it wrote that broad energy subsidies and price controls should be reduced and shifted to targeted, time-bound fiscal support. On monetary policy, it said authorities should focus on goal-oriented liquidity provision rather than excessive tightening.
Meanwhile, the Iran war is hurting global economic growth as well as that of the APAC region. The International Monetary Fund (IMF) said in its World Economic Outlook on the 14th that if oil prices rise 80% from prewar levels due to the U.S.-Iran war, it fears the forecast for global economic growth this year will plunge to 2.6% from 3.4%.