West Asia Conflict May Cut Asia-Pacific Growth by 1.3%, Raise Inflation: Report

It is obvious that the conflict in West Asia is having an impact on the Asia-Pacific economy. In the event that the conflict persists, the economic growth in the region is expected to fall by 1.3 percent, while the inflation rate is likely to increase by 3.2 percent in 2026-27. The major areas impacted include energy prices, supply chains, trade, and finance.

According to reports from rating agencies, Asian countries may have limited direct trade with the West, but their dependence on energy imports and global supply chains could significantly impact them. Rating agencies have specifically mentioned the Strait of Hormuz, through which approximately 20% of the world's oil and gas supplies pass, a large portion of which reaches Asia.

The current tensions have disrupted shipping, leading to a sharp surge in oil prices, which briefly reached $120 per barrel. Furthermore, financial markets have also been strained. Stock markets have fallen and bond yields have risen. Reports suggest that instead of completely controlling prices, they should be allowed to rise partially to conserve energy resources and promote alternative energy. Central banks should monitor inflation and prevent excessive market volatility.

Rating agency ICRA says that if the conflict ends quickly, its impact may be limited. If the situation persists for a long time, it could seriously impact the region's economic prospects. The Asian Development Bank has advised governments to maintain economic stability, control energy consumption, and rapidly develop alternative energy sources. Additionally, emphasis has been placed on adopting limited-term support measures for vulnerable groups, rather than subsidies and price controls.

Rating agency Crisil has warned that disruptions in shipping will increase costs, delay production, and increase pressure on supply chains. It said that nations dependent on Gulf countries could be hit hard, as weakened economic activity there could reduce the income of migrant workers. This could lead to a decrease in remittances.

ADB believes that if the conflict ends quickly, the impact will be limited. A prolonged conflict will impact growth and inflation. Growth in Southeast Asia and the Pacific will be most affected, while inflation in South Asia, including India, could rise the most. Albert Park, ADB's chief economist, said that a prolonged crisis could create a difficult situation for countries, where they will have to balance between low growth and high inflation.

Rising oil and gas prices due to ongoing geopolitical tensions in West Asia could impact India's economy. Higher energy prices could put pressure on the government's fiscal deficit target for fiscal year 2026-27. The government may have to spend more on subsidies such as fertilizer and LPG.