AMRO Holds ASEAN+3 Growth at 4% for 2026, Lifts Inflation Forecast on Middle East Conflict

The ASEAN+3 Macroeconomic Research Office (AMRO) kept its 2026 growth forecast for the region at 4.0 percent on June 2, holding the line it set in early April. At the same time, it raised its inflation projection to 1.8 percent from 1.4 percent, citing more prolonged fallout from the Middle East conflict.

The message is a balancing act. Growth has held up, but the costs of an extended war are beginning to filter through.

Domestic demand is doing the heavy lifting

First-quarter growth came in stronger than AMRO expected, helped by firm domestic spending and steady technology exports. That resilience is the main reason the headline growth number did not move, even as external conditions deteriorated.

"ASEAN+3 growth has remained resilient, supported by firm domestic demand and technology exports," said AMRO Chief Economist Dong He. He added that "incipient signs of stress are emerging" as higher energy and transport costs feed into inflation.

The region covered by the forecast includes the 10 ASEAN members plus China, Hong Kong, Japan, and Korea.

The conflict is lasting longer than assumed

AMRO's revision reflects a simple problem. The Middle East conflict has entered its fourth month, well past earlier expectations of a resolution within two months.

That duration matters. Energy, commodity, and logistics costs have climbed and stayed elevated. Supplies of petroleum products have tightened. AMRO also flagged early disruptions in industrial inputs such as helium, sulfur, and fertilizers, though it noted that broad market dislocations have so far been avoided.

The full economic impact, AMRO said, has yet to materialize. The hit is expected to land unevenly. Net energy importers and economies that rely on the affected inputs face the strongest headwinds. Continued tariff uncertainty adds another layer of pressure.

The downside scenario carries real weight

AMRO laid out an adverse case to show how quickly the picture could change. Its baseline assumes oil averages USD95 per barrel in 2026.

If oil instead averages USD125 per barrel and supply disruptions worsen, regional growth could slow to 2.5 percent and inflation could climb to 3.5 percent.

The office put that outcome in historical terms. Excluding the pandemic years, 3.5 percent inflation would be the region's highest in more than a decade. Growth of 2.5 percent would be the slowest since the Asian Financial Crisis.

The duration and severity of the conflict, AMRO said, remain the most important near-term risks to the outlook.

What policymakers are being told

AMRO's prescription leans toward caution rather than broad stimulus. Near-term support, He said, should be targeted and temporary as the shock evolves.

For the longer run, the office pointed to three priorities: energy security, supply-chain resilience, and regional integration. Each speaks to the vulnerabilities the current shock has exposed.

The gap between the baseline and the adverse scenario is wide, which leaves the outlook unusually dependent on a geopolitical event outside the region's control. Holding growth at 4.0 percent assumes the conflict does not escalate much further.

AMRO plans its next update in late July 2026, which should give a clearer read on whether the early stress signals it described have spread or faded.