ADB and IMF Predict Global Economy in Turmoil Due to War in the East
Jakarta, CNBC Indonesia - Several international institutions have released assessments of the potential economic pressures facing the world due to the escalating war between Iran and the United States and Israel in the Middle East.
Among them is the Asian Development Bank (ADB), which has released three conflict scenarios that could directly influence economic pressures on countries in the Asia-Pacific region.
The ADB states that the conflict in the Middle East could reduce economic growth in developing Asia and the Pacific by up to 1.3 percentage points during the 2026-2027 period.
Additionally, it could increase inflation by 3.2 percentage points if disruptions in the energy market last more than a year, as the conflict zone is one of the world’s main trade routes for oil and gas as well as fertilisers, such as the Strait of Hormuz.
“Prolonged energy supply disruptions could force developing economies in Asia and the Pacific to face a difficult dilemma between slowing growth and rising inflation,” said ADB Chief Economist Albert Park, quoted from a press release on Monday (30/3/2026).
The ADB warns that the conflict will impact Asia-Pacific economies through rising energy prices, supply chain and trade disruptions, and tightening financial conditions. The tourism sector and remittances are also at risk of being affected.
In the three conflict scenarios considered, it is evident that whether short-term or long-term, the war could spill over to various countries.
In the first scenario, the ADB calculates that the war triggers disruptions lasting until the end of June 2026, with oil prices rising to an average of US$105 in that quarter before returning to baseline levels in the third quarter of 2026, and gas prices rising in the second quarter of 2026. The impact would be economic pressure of minus 0.3 percentage points with inflation rising by 0.6 percentage points.
In the second scenario, prolonged disruptions until the end of September 2026. Taking into account oil prices rising to US$130 in the second quarter of 2026 and US$120 in the third quarter of 2026 before returning to baseline in the fourth quarter of 2026, and gas prices rising more sharply compared to oil. The effect on the economy would be pressure of minus 0.7 percentage points and inflation driven up by 1.2 percentage points.
The third scenario involves severe disruptions lasting until the end of February 2027. Marked by oil prices surging to over US$155 in the second quarter of 2026, before gradually falling to US$140 between the third quarter of 2026 and the first quarter of 2027 until returning to baseline, accompanied by a sharp rise in gas prices approaching levels after Russia’s invasion of Ukraine. The economic impact would be minus 1.3 percentage points and the inflation impact 3.2 percentage points.
The ADB emphasises that the adverse growth impacts will be most severely felt by economies in developing Southeast Asia and the Pacific, while inflation rates will rise highest in South Asian economies.
These scenarios reflect a high level of uncertainty regarding conflict developments and accompanying disruptions, so they should be treated with caution. In addition to rising energy prices, the scenarios also account for broader supply chain disruptions and global financial tightening.
“Governments should focus on easing market tensions and protecting the most vulnerable groups, while implementing policies to enhance long-term resilience,” stressed Albert Park.
To address various economic disruption risks from the war, the ADB recommends four main policy steps:
First, policies should focus on stabilisation, not suppressing price signals. Allowing energy price increases to pass through at least partially can encourage energy conservation, shifts to alternative fuels, and investment in alternative energy sources. Broad price controls or general subsidies risk distorting incentives, delaying adjustments, and causing inefficient resource allocation.
Second is fiscal support, if needed. This fiscal support should be targeted and time-limited. Priority should be given to support for vulnerable households and the most affected sectors. Well-targeted measures can mitigate the social impacts of price rises while keeping fiscal costs down and preserving incentives to adapt to the shock.
Third, the ADB suggests that central banks should focus on efforts to limit excessive market volatility while continuing to monitor inflation expectations. The primary priority is providing targeted liquidity support to ensure smooth market functioning. Overly aggressive policy tightening risks exacerbating growth barriers and worsening financial volatility. While some policy tightening may be necessary within limits, stabilising inflation expectations through effective central bank communication remains key.
Finally, governments should appropriately limit energy demand. Practical steps that can be taken include setting air conditioning temperature limits, turning off non-essential lighting, prioritising electricity savings during peak hours, and implementing work-from-home policies or staggered work schedules. Providing incentives for public transport use and enforcing car-free days in urban areas on national holidays can also help reduce transport fuel consumption.
Meanwhile, the International Monetary Fund (IMF) has previously warned that any outbreak of armed war will immediately shake lives.