World Bank and ADB Warn Middle East Conflict Risks Asia Growth

The World Bank and Asian Development Bank (ADB) have warned that the conflict involving the United States, Israel, and Iran is intensifying downside risks for economies across Asia and the Pacific. The ADB projects regional growth will moderate to 5.1% in 2026 and 2027, with the potential to drop to 4.7% if disruptions in the Strait of Hormuz persist. High energy prices and supply-chain disruptions are cited as primary drivers of potential stagflationary pressures and food insecurity.

India remains a regional growth driver, though forecasts have shifted. The World Bank raised India's current fiscal year forecast to 6.6% due to strong domestic demand and new trade agreements with the EU and UK, but later lowered its FY27 projection from 7.2% to 6.6%. This deceleration is attributed to headwinds from the West Asia conflict, which are expected to constrain household disposable income and increase the general government fiscal deficit to 7.6% of GDP. Meanwhile, the ADB maintains a more optimistic outlook for India, projecting growth of 6.9% in 2026 and 7.3% in 2027.

Indian officials and institutions have emphasized the nation's resilience. Shaktikanta Das highlighted India's ability to emerge stronger from global crises, while the World Bank noted that India's $697.1 billion in foreign exchange reserves provide a significant buffer. However, Finance Minister Nirmala Sitharaman warned that trade fragmentation and regional conflict have pushed the global economy toward a state of permanent volatility. Other regional outlooks remain fragile, with the ADB projecting moderate recoveries in Pakistan and Sri Lanka, while China's growth is expected to dip to 4.6% due to property market weakness.