Asian Economy Predicted to Grow 4.9 Percent, ADB Warns of Energy and Food Risks

Asian Development Bank office. (ADB photo - PNA)

JAKARTA - The Asian Development Bank or ADB has raised its forecast for Asian economic growth to 4.9 percent by 2026. However, Middle East conflicts, production costs, and food risks have left the region under pressure.

The Straits Times, citing Bloomberg, Thursday, July 9, reported that ADB's latest projections rose from an estimated 4.7 percent in a special update published after the Middle East conflict disrupted global energy markets.

The upward revision has not removed all the pressure. The latest figure is still below the forecast of 5.1 percent in the April edition of the Asian Development Outlook regular report.

ADB estimates Asian inflation at 4.3 percent in 2026. This figure is down from the 5.2 percent projection in the April update as oil prices and supply conditions begin to stabilize.

However, inflation is still higher than the 3.6 percent projection in the April regular report. Inflation is expected to ease to 3.4 percent in 2027.

ADB warns that the impact of the Middle East conflict does not stop at the energy market. The effects can enter the wider economy, but appear with a time lag.

ADB Chief Economist Albert Park said strong demand for semiconductors related to artificial intelligence or AI investment has helped contain the impact of rising energy prices. This impact is especially visible in Asian developed economies such as Taiwan, China, South Korea, and Hong Kong.

Semiconductors are a key component for electronic and computing devices. Demand is rising as data centers and AI services require large numbers of chips.

The slightly better outlook also reflects lower oil prices and easing supply disruptions since the peak of the conflict.

However, ADB assesses that the risks still point more to the negative side. These risks include a new escalation of the war, prolonged uncertainty in the energy market, tighter financial conditions, and a deeper decline in the Chinese property sector.

"The Middle East conflict has lasted longer than assumed in April, causing prolonged disruptions to energy and supply chains. This condition raises production costs and will suppress regional activity more than previously estimated," said ADB.

ADB also highlighted the risk of disruption of shipping routes and bad weather, including El Nino. El Nino is a climate phenomenon that can trigger extreme weather and disrupt food production.

The disruption can push up food prices because it affects agricultural production and trade flows.

For advanced economies in Asia and the Pacific, ADB raised its growth projection to 2.6 percent from 2.2 percent in April. The increase was driven by strong external demand for electronics and machinery due to the AI explosion in South Korea, Taiwan, Japan, and Singapore.

"We are overall optimistic about the AI movement," Park said.

"Eventually, we will start to see higher productivity growth in economies that start to adopt AI more broadly," he said.

However, Park cautioned that the benefits of AI are likely to be uneven in Asia. Countries that do not have adequate digital capabilities risk falling further behind.

ADB also advised governments to avoid fossil fuel subsidies. According to the bank, the country's financial resilience needs to be maintained, while the impetus to save energy remains.

"The government should rely primarily on targeted interim measures, which protect vulnerable households without sacrificing fiscal sustainability or weakening incentives," the ADB said.