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UN ESCAP warns inflation in Asia-Pacific will rise to 4.6% in 2026, up from 3.5% in 2025
Growth across developing economies in the region is expected to slow to 4.0%
West Asia conflict is driving up energy, food and fertiliser prices, worsening cost pressures
Low-income households and informal workers likely to be hit hardest
India’s GDP growth projected to ease to 6.4% in 2026 amid rising inflation risks
Rising inflation pressures, driven by surging energy and food prices linked to the ongoing conflict in West Asia, are clouding the economic outlook for Asia and the Pacific, the United Nations has warned in a new report, even as the region remains the world’s fastest-growing developing bloc.
The Economic and Social Survey of Asia and the Pacific 2026, released by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), projects that inflation in developing economies in the region will climb to 4.6 per cent in 2026, up from 3.5 per cent in 2025, reversing recent stability gains. At the same time, growth is expected to slow to 4 per cent from 4.6 per cent.
The conflict in West Asia, triggered by attacks on Iran by Israel and the United States on February 28, 2026, has driven sharp increases in commodity prices and heightened market volatility. Brent crude briefly rose to $120 a barrel and remains about 45 per cent higher than pre-conflict levels, while global gas prices have surged by around 55 per cent and urea prices by 35 per cent. These factors are feeding directly into inflation and weakening household purchasing power, the report warned.
Freight rates have increased by 3-10 per cent, while Asian stock markets have fallen by between 5 per cent and 16 per cent, ESCAP said. Currencies have depreciated by 0.4-1.5 per cent, and bond yields have risen by 18-27 basis points.
Low-income households and informal workers are expected to bear the brunt, as they spend a larger share of their income on food and energy and have limited access to social protection.
“Policymakers are navigating rising global trade protectionism, economic policy uncertainty and geo-economic fragmentation,” said Armida Salsiah Alisjahbana, warning that impacts will be disproportionate for vulnerable economies and populations.
If prolonged, the conflict could further dampen growth. A 10 per cent rise in energy costs may reduce global GDP growth by 0.2 percentage points, while pushing up inflation, interest rates and external vulnerabilities. Rising fertiliser and food prices could worsen food security, increasing poverty and inequality, particularly as between 20 per cent and 28.7 per cent of the population in some Asia-Pacific economies is already undernourished.
For India, which sources about 50 per cent of its oil imports from West Asia sustained price shocks could widen the import bill, fuel inflation and weaken the rupee, complicating growth and monetary policy. Real GDP growth is projected at 6.4 per cent in 2026 and 6.6 per cent in 2027, following 7.4 per cent in 2025 and 6.5 per cent in 2024, while inflation is expected to be 4.4 per cent in 2026 and 4.3 per cent in 2027, after easing to 2.3 per cent in 2025 from 4.6 per cent in 2024.
The report underscores that inflation could rise further if geopolitical tensions persist. A prolonged conflict scenario could trigger sharper spikes in commodity prices, further supply chain disruptions and higher interest rates, alongside weaker exports, remittances and tourism.
Already, global shocks — from tariff hikes to supply chain fragmentation — are compounding pressures. Higher inflation expectations may force central banks to tighten monetary policy, while high public debt levels limit governments’ ability to cushion the blow.
Despite the slowdown, Asia-Pacific remains the fastest-growing developing region globally, the ESCAP report says. However, the headline numbers mask widening disparities: least developed countries are growing more slowly, youth unemployment remains elevated, and inequality risks are rising.
The report stresses the need to shift away from export-led growth towards stronger domestic and regional demand, alongside productivity gains, better social protection and improved access to finance.
The UN positions the clean energy transition as critical to reducing long-term inflation vulnerability linked to fossil fuel shocks. “This is especially critical today, as we witness in real time the effects of a dependence on fossil fuels,” said António Guterres, noting that conflicts can send shockwaves through global prices.
However, the report cautions that poorly designed transition policies could themselves stoke inflation, strain fiscal balances and worsen inequality in the short term. Gradual fossil fuel subsidy reforms, targeted fiscal support and stronger integration of economic policy into climate strategies are key to managing these trade-offs.
High debt burdens and rising borrowing costs are constraining fiscal responses across the region. Many governments face limited room to support households even as living costs rise, raising concerns over poverty and inequality.
The report also highlights that macroeconomic policies remain weakly integrated into national climate plans, with less than 12 per cent referencing fiscal policy and none mentioning monetary policy.
ESCAP calls for deeper regional cooperation to counter global fragmentation, including stronger connectivity, integrated value chains and coordinated policy responses.
It also points to political economy and behavioural tools — such as timing reforms strategically and improving public acceptance of carbon pricing — as critical to sustaining policy momentum.
As inflation resurges and growth slows, the report concludes, the region’s challenge will be to balance macroeconomic stability with an inclusive and carefully managed energy transition.