The Asian Development Bank has upgraded its 2026 growth outlook for developing Asia to 5%, representing a 0.1 percentage point increase from previous forecasts. The bank now projects 5.1% growth for 2027, with the region expected to expand more slowly than in 2025 but maintain resilience through strong investment, public stimulus, and technology exports. However, inflation remains a key concern, with the ADB trimming its 2026 inflation forecast to 4.2% from 4.3% in July, while raising the 2027 projection to 3.5% from 3.4%. These projections are significantly above the 3% recorded in 2025, as reported by the ADB. According to ADB President Masato Kanda, the region remains resilient but faces growing risks, with drier conditions tied to a strengthening El Niño threatening harvests and hydropower output while pushing up food and energy prices for vulnerable households.
Recent studies have intensified concerns about El Niño's impact on Asia, with researchers at the University of Chicago's Climate Impact Lab warning that extreme heat linked to this year's super El Niño could threaten more than 450,000 lives globally over the next six months, including nearly 16,000 people in India. The study estimates that the number of extremely hot days could rise by 44% compared with normal years, with the current El Niño beginning in June and expected to continue into next year. Citi India Chief Economist Samiran Chakraborty has warned that El Niño could impact winter crops in India, adding to existing disrupted monsoon patterns with drought and floods reported in several parts of the country. The Climate Impact Lab described this year's El Niño as a "postcard from the future," suggesting it could offer a glimpse of temperatures that may become normal in coming decades.
The ADB identified multiple factors contributing to the inflationary pressures, including the re-escalation of fighting in Iran and the spread of conflict to Yemen, which have choked supplies of crude and refined products. Russia's war on Ukraine has disrupted grain shipments, while abnormal weather patterns due to El Niño are already threatening harvests from India to Thailand. As reported by the ADB, drier conditions tied to a strengthening El Niño could reduce harvests and hydropower output while pushing up food and energy prices for vulnerable households. The bank also flags the risk of a sharp correction in artificial intelligence-related equity valuations, tighter financial conditions, and renewed trade policy uncertainty as additional downside factors for the region. These weather-related pressures are particularly concerning as they coincide with ongoing geopolitical tensions that continue to disrupt global supply chains.
The ADB has raised its oil-price forecasts to $90 and $78 a barrel for this year and next, respectively. While broad subsidies have helped cushion the impact for consumers this year, persistently high energy prices are beginning to work through economies. According to the ADB, the pass-through effect is likely to be strongest in countries where food weighs heavily in the consumption basket, particularly in South Asia. Several economies including Bangladesh, India, Indonesia, Pakistan, the Philippines, and Vietnam have scope for further monetary tightening this year if inflation persists. Deloitte Chief Economist Rumki Majumdar expects crude prices above USD 100 a barrel to be temporary, with prices eventually normalising at USD 80-90 as geopolitical uncertainty eases. The ADB notes that price stabilization measures partly offset persistently high energy costs, though inflation remains elevated above 2025 levels.
At the subregional level, developing Southeast Asia sees modest upgrades for 2026 and 2027 to 4.7% and 4.9% after stronger-than-expected first-half performance in 2026. South Asia's 2026 growth forecast is lifted to 6.4% from 6% on strong public investment and firm export growth in India, though its 2027 projection is cut to 6.5% from 6.7%. The Pacific subregion faces steep downgrades, with growth now seen at 3% and 2.9% due to prolonged energy market disruption and expected El Niño effects on mining and agriculture. The outlook for developing East Asia, including the People's Republic of China, remains unchanged, as reported by the ADB. The bank attributes the regional resilience to strong investment, government stimulus, and solid technology exports linked to the global artificial intelligence investment cycle that are helping sustain momentum even as geopolitical tensions and weather-related pressures add to economic challenges.
