ADB Sees Modest Growth Impact From Middle East Conflict
ADB says a brief Middle East conflict will have modest impact on Asian growth. Chief Economist Albert Park warns risks rise if trade disruptions last longer.
The Asian Development Bank (ADB) has indicated that the economic impact on developing Asia from the ongoing Middle East conflict and the potential closure of the Strait of Hormuz may remain limited, provided the disruption is short-lived. According to projections from the United States, a conflict lasting approximately one month would likely result in only a temporary downward trend in annual GDP for the region.
\"Most of the scenarios suggest that the impacts will be, of course, negative, but relatively modest.\"
ADB Chief Economist Albert Park noted that even under pessimistic assumptions, the shock is unlikely to reduce regional growth by a full percentage point. The region categorized as developing Asia encompasses 46 economies, including major players like China and India, as well as nations such as Georgia and Samoa. This classification specifically excludes developed markets such as Japan, Australia, and New Zealand.
However, the risks to the regional outlook intensify significantly if the conflict persists. A prolonged crisis could drive up the price of Brent Crude Oil, disrupt global shipping lanes, and weaken international demand. Park emphasized that 80% of the oil and gas passing through the Strait of Hormuz is destined for Asian markets, making the region highly vulnerable to extended supply chain interruptions.
Additional pressure could stem from disruptions to air travel and cargo routes, compounded by existing restrictions over the airspace of Russia. Such conditions would place further strain on economies dependent on tourism and international trade. Prior to the escalation, the ADB had projected regional growth to slow to 4.6% this year, compared to an estimated 5.1% in 2025, with inflation expected to rise to 2.1%.
The financial landscape also remains a point of concern as investors seek safety in the greenback. This flight to quality has increased the value of the dollar against major pairs, including the USD/JPY, putting downward pressure on various Asian currencies and raising the cost of energy imports.
\"If financial disruption becomes disorderly, then our advice is for central banks to think about stabilising markets.\"
Park suggested that while central banks should not necessarily target specific exchange rates, they should be prepared to inject liquidity and stabilize markets if financial conditions shift rapidly and create credit pressures.
