The West Asia conflict is adding fresh pressure to the economic outlook for Asia and the Pacific. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has estimated that the Indian economy will grow by 6.4% this fiscal year. For FY27, it has forecast that the Indian economy would perform better with GDP growth of 6.6%.
With higher energy and food prices, it has also forecast a pickup in inflation in India to 4.4% this fiscal from an estimated 2.3% in FY26. Inflation would ease marginally to 4.3% next fiscal, it has said.
ESCAP has projected, under considerable uncertainty, that developing economies in the region will grow by 4% in 2026 on average, down from 4.6% in 2025, and inflation will rise to 4.6% in 2026 on average, up from 3.5% in 2025, reversing recent gains in inflation stability. Despite this moderation, the region is expected to remain in the fastest-growing developing region globally.
“The obvious near-term risk is the duration and further intensification of the recent conflict in the Middle East… such a scenario would substantially disrupt economic activities and trade and investment flows in the region,” said the Economic and Social Survey of Asia and the Pacific 2026, released on Tuesday.
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It further said that the magnitude of the impact and extent of vulnerability of economies depends on several factors, such as high dependence on crude oil and liquified natural gas (LNG) from countries in West Asia; depth of trade and economic and value chain ties with the Islamic Republic of Iran and other countries in West Asia; dependence on remittances and tourism for foreign exchange earnings; resilience of the energy sector in terms of strategic oil and LNG reserves and alternative supply chains; and economic structure vis-à-vis dependence on energy-intensive industries and manufacturing.
It further said that the other near-term risk is the re-escalation of trade tensions. “Although global trade policy uncertainty may have reduced since the spike in April 2025, it is still unusually high,” the report said.
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It also highlighted a third near-term risk, global financial volatility. “Among others, if the inflationary impact of the tariff hikes, as well as stricter immigration policies, on the US economy is greater than anticipated, this could lead to an unexpected shift in the country’s policy interest rate direction, with implications for capital flows and exchange rate volatility in the region,” it said.
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