Asia's Outlook Seems Rosier, But Energy Shocks, El Nino Risks Linger, ADB Says

By Amanda Lee

SINGAPORE--Asia's economic outlook seems a rosier, the Asian Development Bank says, but extreme weather and energy shocks threaten to weaken growth and push up inflation.

Private investment, government stimulus and strong technology exports will support growth prospects across the region amid the artificial intelligence boom, the multilateral bank said Wednesday.

The ADB now expects developing Asia and the Pacific, which includes a grouping of 43 of its members at 5.0% in 2026, just a tad higher than 4.9% previously--but still below 2025's 5.5% expansion. It maintained its 2027 regional growth forecast at 5.1%.

Inflation across Asia has cooled recently, after touching multiyear highs amid the global energy shock. While oil prices declined briefly in mid-June after the U.S. and Iran agreed to a temporary ceasefire, they picked up again from July amid renewed fighting in the Middle East.

Still, a prolonged Middle East conflict and the re-escalation of the Russia-Ukraine war are keeping energy costs elevated and volatile.

Furthermore, countries are bracing for the impact of El Nino--a planetary dance of weather phenomena that starts with spiking heat in the Pacific and deals out drought and floods across continents--which could lift up the cost of living.

While regional inflation is expected to remain above the 3.0% seen in 2025, ADB slightly trimmed its 2026 projection to 4.2% from 4.3%. This is due to weaker demand in China and South Asia, as government price stabilization measures temper the pass-through of higher global energy costs.

However, the bank raised its 2027 regional inflation forecast to 3.5% from 3.4%, citing intensifying El Nino conditions.

A strengthening El Nino is compounding energy and food price pressures, particularly in economies which are dependent on imported energy and agricultural commodities, ADB said.

Renewed tariff hikes and rising trade policy uncertainty could also weigh on the region's economic activity, the bank added.

Yet, the ADB report cited that some economies have posted stronger-than-expected growth, thanks to surging AI-related exports.

Firm demand for machinery and electronics amid the AI boom have favored economies such as South Korea, Singapore, Taiwan and Hong Kong. The ADB now expects the growth forecast for advanced Asia and the Pacific to accelerate to 3.1% from 2.6%.

Advanced Asia and Pacific comprises seven members including Australia, Hong Kong, Japan, South Korea, New Zealand, Singapore and Taiwan.

On whether there are risks for economies that are buoyed by AI tech exports, if there's an AI bubble, ADB chief economist Albert Park said the bank is "fairly bullish that AI is going to be a long-term trend, which is going to deliver productivity gains for economies."

"But from an investment standpoint in the equity markets it could be a bumpy ride," Park said at a press conference.

If investors begin losing faith on whether investment or revenue sufficiency to justify equity prices, a pullback--even a large one could follow, he added.

If investors lose faith over investment or revenue sufficiency to justify equity prices, there could be a pullback or correction--even large ones, he added.

Write to Amanda Lee at amanda.lee@wsj.com

(END) Dow Jones Newswires

September 22, 2026 20:14 ET (00:14 GMT)