ADB sees modest growth impact on Asia if Middle East conflict lasts about a month

MANILA — The Asian Development Bank’s (ADB) chief economist said on Friday that if the Middle East conflict and closure of the Strait of Hormuz last only about a month, as some US projections suggest, the impact on growth in developing Asia would be modest, with only a slight and temporary “downward blip” in annual GDP.

“Most of the scenarios … suggest that the impacts will be, of course, negative, ⁠but relatively modest,” ADB Chief Economist Albert Park told Reuters in an interview, adding that even under pessimistic assumptions, the shock would not reduce regional growth by a full percentage point.

Developing Asia consists of 46 economies ranging from China and India to Georgia and Samoa, but excluding Japan, Australia and New Zealand.

Park said the risks would rise sharply if the conflict drags on, warning that it could drive up energy prices, cause greater disruptions to shipping and trade, weaken global demand, and bring more volatility to the financial markets.

Park noted that 80% of the oil and gas passing through Hormuz are bound for Asia, underscoring the region’s vulnerability to extended supply disruptions.

A prolonged ‌crisis could ⁠also spill into air travel and cargo routes, on top of existing restrictions over Russian airspace, adding strain to tourism‑reliant and trade‑dependent economies, Park said.

Before the conflict, the ADB had projected the region to slow to 4.6% this year from the 5.1% growth expected in 2025. It also forecast a slight acceleration in inflation to 2.1% this year, from last year’s 1.6% ⁠estimate.

But Park said the outlook remains uncertain, particularly if financial conditions deteriorate.

Heightened uncertainty has already triggered a “flight to safety” into US dollar assets, pushing the greenback higher and putting downward pressure on Asian currencies, which could further raise the cost of ⁠imported oil.

If flows become disruptive, policymakers may have to step in, he said.

“If financial disruption becomes disorderly, then our advice is for central banks to think about stabilizing markets,” Park said.

“Not trying to target prices ⁠on exchange rates or anything like that, but certainly to try to stabilize both exchange rate markets and also possibly inject some liquidity if the financial conditions change quickly and create certain credit pressures,” he added. — Reuters