ADB cuts developing Asia, Pacific growth amid Middle East conflict disruptions

The Asian Development Bank (ADB) on Wednesday downgraded its economic growth outlook and raised inflation projections for developing Asia and the Pacific due to severe and prolonged disruptions from the conflict in the Middle East.

The ADB forecasts regional growth at 4.7 percent in 2026 and 4.8 percent in 2027, down from the 5.1 percent forecast for both years in early April, based on an assumption of earlier stabilization of the situation in the Middle East.

The bank projected the inflation in the region to accelerate to 5.2 percent this year from 3 percent last year, before easing to 4.1 percent in 2027. While the early April forecast predicted a 3.6 percent inflation in 2026 and 3.4 percent in 2027.

The new outlook assumes that oil prices average around 96 U.S. dollars per barrel in 2026 and will ease to around 80 U.S. dollars per barrel in 2027, both above the pre-conflict average of 69 U.S. dollars per barrel in January and February this year.

Under an even more severe downside scenario of renewed conflict escalation, in which oil prices spike in May 2026 and remain even higher, growth in developing Asia and the Pacific could slow to 4.2 percent this year and 4 percent next year, while inflation could reach 7.4 percent in 2026.

The bank said continued risks to energy production and transport routes, alongside sustained pressure on oil and gas prices, will particularly affect economies heavily dependent on imported fuel, remittances, tourism or external financing. It added that the disruptions to global energy and trade networks could be long-lasting, not just temporary volatility.

Japan's benchmark yield on newly issued 10-year government bonds on Thursday briefly rose to 2.515 percent in the domestic bond market, hitting its highest level since February 1999.

The 10-year bond yield serves as a key indicator of long-term interest rates in Japan.

Against the backdrop of sustained turmoil in the Middle East, investors anticipate that high oil prices could exacerbate inflation in Japan. As a result, government bonds of various maturities have been widely sold off in the Tokyo bond market in recent days, driving long-term bond yields higher.

Bond prices and yields move in opposite directions. When investors actively purchase government bonds, prices rise and yields fall. Conversely, when bonds are sold off, prices drop and yields increase.