Wars in Europe and the Middle East and a severe El Nino are amplifying price pressures across Asia, likely fanning inflation through next year and keeping central banks on guard, according to the Asian Development Bank. The reescalation of fighting in Iran and the spread of conflict to Yemen have choked supplies of crude and refined products, while Russia’s war on Ukraine has disrupted grain shipments, the ADB said in its latest outlook released on Wednesday. Abnormal weather patterns due to El Nino are already threatening harvests from India to Thailand, as well as reducing hydropower generation and even restricting traffic in waterways like the Panama Canal.
It expects economic growth to slow to 5% in 2026, from 5.5%, and raised its oil-price forecasts to $90 and $78 a barrel for this year and next. While broad subsidies have helped cushion the blow for consumers this year, persistently high energy prices have started working their way through economies. That pass-through is likely to be strongest in countries where food weighs heavily in the consumption basket, such as in South Asia, the ADB said.
Several economies have scope for further monetary tightening this year if inflation persists, including Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam, the bank said. Once inflation recedes, policymakers may start weighing rate cuts in 2027, it said.
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