Growth Amid Energy Shock Risks

AMRO’s flagship AREO 2026 report projects steady regional growth for ASEAN+3 while warning that the Middle East conflict has significantly increased downside risks through energy supply disruptions.

Key Details:

• Regional growth is forecast at 4.0% in both 2026 and 2027, following stronger-than-expected expansion of 4.3% in 2025.
• The Middle East conflict has raised energy prices, pushing headline inflation from 0.9% in 2025 to a projected 1.4–1.5% in 2026–2027.
• The region is considered better positioned than in previous energy shocks due to improved energy efficiency, lower oil dependency, and available policy space.
• A prolonged conflict could spread disruptions beyond energy markets to industrial inputs, logistics, food prices, tourism, and remittances.
• Structurally, ASEAN+3 has shifted toward intraregional demand — now accounting for 28% of global final demand — with US-bound value-added exports falling from ~one-third to 20%.
• Policymakers are urged to maintain financial stability, act decisively against sustained inflation, and provide targeted fiscal support without fuelling inflation.

Why It Matters:
ASEAN+3’s growing regional integration and economic resilience provide a strong foundation, but sustained policy vigilance and deeper regional cooperation will be critical to navigating ongoing global shocks.

Chapter 1: Macroeconomic Prospects and Challenges

ASEAN+3 delivered a stronger-than-expected performance in 2025 despite the most significant shift in global trade policy in decades. Economic activity remained well-supported by firm domestic demand, robust export performance, continued investment, and strengthening intraregional linkages.

Near-term risks (Chapter 1):

• Ongoing conflict in the Middle East and energy supply disruptions (especially via the Strait of Hormuz).
• Shifting U.S. trade policies and volatile technology demand.
• Financial market volatility adding downside pressure.
• Policymakers’ central challenge: preserving policy flexibility.

Looking ahead, the balance of risks is tilted to the downside, with uncertainty remaining elevated. Trade policy shifts and technology demand have each become sources of two-sided risk. The conflict in the Middle East and the disruption to energy supply through the Strait of Hormuz pose a significant near-term risk to both growth and inflation, while financial market volatility adds further downside pressure.

The region nonetheless enters 2026 from a position of relative strength. Growth outperformed expectations in 2025, inflation remained low, and most economies retain meaningful fiscal and monetary space. Preserving policy flexibility remains the central near-term challenge for policymakers across the region.

Source : ASEAN+3 Regional Economic Outlook 2026 – ASEAN+3 Macroeconomic Research Office – AMRO ASIA

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