Economic growth across Asia would likely slow even if oil prices stabilize in the coming months, as the impact of war in the Middle East ripples through industries from manufacturing to tourism, the Asian Development Bank (ADB) said.
The US and Israeli war on Iran is projected to halt developing Asia’s economic upswing, with the region’s GDP expansion seen moderating to 5.1 percent this year from 5.4 percent last year, the ADB said in its Asian Development Outlook report released yesterday.
The report’s projections were finalized more than a week into the Iran war, which started on Feb. 28, and assume a scenario where oil prices would gradually normalize and move toward pre-war levels by year-end.
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The situation remains volatile, with oil prices whipsawing on daily developments in the conflict.
“Developing Asia and the Pacific’s economic ascent faces a formidable test,” ADB President Masato Kanda said in the report. “While the region’s direct exposure is limited, it remains vulnerable to rising prices for energy and other commodities, which fan inflation and tighten financial conditions.”
The Manila-based lender forecasted that China’s growth would ease to 4.6 percent this year from 5 percent last year, with private consumption remaining subdued in Asia’s largest economy.
India’s economic growth is also projected to decline to 6.9 percent this year from last year’s 7.6 percent due to external headwinds, although it should get support from resilient consumption.
Developing Southeast Asia’s expansion is forecast to be broadly steady, the ADB said, which reclassified some economies as advanced, instead of developing.
Growth in advanced economies in Asia and the Pacific region would ebb from 2.5 percent last year to 2.2 percent this year, due to slowdowns in Taiwan, Hong Kong, Japan and Singapore, it said.
Inflation in developing Asia would also accelerate to 3.6 percent this year from 3 percent last year, driven mainly by higher energy prices, the ADB said.
Farm production costs and food prices are expected to rise as the region relies on the Middle East for supplies of fertilizers and other related inputs, including urea and ammonia, it added.
The Iran war would also likely hit semiconductor output, amid disruptions in the shipments of key inputs for chip manufacturing such as helium, sulfur and petrochemical products, the ADB said.
Tourism-dependent economies would likewise feel the drag after the war upended global travel, it added.
Despite the war posing downside risks to Asian economies, the lender cautioned against aggressive monetary policy tightening and price controls.
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