MANILA — The Middle East conflict is expected to dampen the growth outlook of Asia-Pacific economies, including the Philippines, the Asian Development Bank (ADB) said.

In its April 2026 Asian Development Outlook released Friday, the ADB lowered its Philippine economic growth projection to 4.4 percent for 2026, down from its earlier forecast of 5.3 percent. Growth is expected to recover to 5.5 percent in 2027.

The ADB said domestic demand will continue to support growth but at a weaker pace, while business sentiment is expected to remain cautious due to uncertainty linked to developments in the Middle East. It also flagged possible disruptions in remittances from overseas Filipinos, tighter financial conditions, and weaker investor and consumer confidence as additional risks, although remittances are expected to recover once regional conditions stabilize.

The report also highlighted ongoing structural reforms, including amendments to the Foreign Investors’ Long-Term Lease Act, the Open Access in Data Transmission Act, the CREATE MORE Act, and green lane initiatives, which it said are expanding opportunities for foreign investment. It added that proper implementation of these reforms, along with improved regulatory efficiency, would help sustain investment inflows.

Public infrastructure spending is also expected to rebound due to better budget execution, while fiscal policy remains anchored on consolidation under the government’s medium-term framework.

Inflation is projected to rise to 4 percent in 2026 from 1.7 percent in 2025, driven by higher global commodity prices.

“The Philippine economy, with its heavy dependence on imported fuel, will face challenges from rising external risks,” Andrew Jeffries said in a statement.

The ADB noted that inflation averaged 2.2 percent in the first two months of 2026 before rising in March following the escalation of the Middle East conflict. ADB Principal Economics Officer Teresa Mendoza said higher global oil prices quickly passed through to domestic fuel costs due to the country’s dependence on imports.

The government has rolled out targeted assistance measures, including cash and fuel subsidies, to help vulnerable sectors such as farmers, fisherfolk, and public transport drivers, and has also moved to secure oil supplies from non-Middle East sources.

Inflation is projected to ease to 3.5 percent in 2027.

The ADB also emphasized the need to strengthen inclusive and quality education, saying lifelong learning remains a key policy challenge. Mendoza said targeted education reforms, improved nutrition, and stronger private sector collaboration are necessary to support long-term inclusive growth.

“What the current global conditions underscore is really the need for sustained reforms especially in strengthenin,g human capital, improving investment efficiency, and the business environment alongside protecting vulnerable households,” she said.

“Regional cooperation will also be important, strengthening, diversifying regional supply chains, deepening engagement with our neighbors can help reinforce or facilitate cross-border trade, investment, and capital flows,” Mendoza added.

Asia-Pacific outlook

The ADB said the weaker growth outlook extends across developing Asia and the Pacific, with most economies expected to slow in 2026 and 2027 despite resilient private consumption and demand for artificial intelligence-related goods.

Growth in the People’s Republic of China is projected to ease to 4.6 percent in 2026 and 4.5 percent in 2027, from 5 percent in 2025, amid continued weakness in the property sector and slower export growth.

India’s economy is projected to slow to 6.9 percent this year from 7.6 percent in 2025 before rising to 7.3 percent in 2027, supported by strong domestic consumption.

Pacific economies are expected to see the sharpest slowdown, with growth easing from 4.2 percent in 2025 to 3.4 percent in 2026 and 3.2 percent in 2027.

After easing in 2025, regional inflation is projected to rise to 3.6 percent this year due to higher energy prices linked to the conflict.

“The two-week ceasefire announced this week provides some optimism, but it appears to be quite fragile at the moment,” Jaqueson Galimberti said.

He warned that prolonged disruptions in energy markets could significantly affect regional growth. In a scenario where disruptions continue into early next year, regional growth could be 1.3 percentage points lower over 2026 to 2027, while inflation could be 3.2 percentage points higher, alongside risks from US tariff shocks and tighter global financial conditions.