ASEAN+3 Holds Growth Forecast at 4.0% as Inflation Outlook Climbs
AMRO keeps ASEAN+3 growth at 4.0% for 2026 but lifts its inflation forecast to 1.8% as a prolonged Middle East conflict drives up energy and supply costs.
The ASEAN+3 region is on track to grow 4.0 percent in 2026, unchanged from AMRO's April projection, even as the regional surveillance body warns that inflation pressures are building faster than expected.
In an interim update released June 2, the ASEAN+3 Macroeconomic Research Office raised its 2026 inflation forecast to 1.8 percent, up from 1.4 percent. The revision reflects a Middle East conflict that has now entered its fourth month, far longer than the two-month resolution markets had earlier assumed.
The steady growth call rests on what AMRO describes as firm domestic demand and resilient technology exports. The inflation revision tells the other half of the story: energy, commodity, and logistics costs have jumped and stayed high, while supplies of petroleum products have tightened.
Supply-chain stress shows early cracks
The disruption is no longer confined to oil. AMRO flagged early signs of tightness in industrial inputs including helium, sulfur, and fertilizers, materials that feed into manufacturing and agriculture across the bloc. For now, the office said broad-based market dislocations have been avoided.
That distinction matters. The region absorbed the first wave of higher energy prices without a visible hit to output. First-quarter growth came in stronger than expected, according to AMRO. But the full effect of the conflict has not yet worked through the system.
"ASEAN+3 growth has remained resilient, supported by firm domestic demand and technology exports. But incipient signs of stress are emerging," said AMRO Chief Economist Dong He. He added that higher energy and transport costs are now feeding into inflation and pressuring industrial supply chains.
Uneven exposure across the bloc
The headline 4.0 percent figure masks divergence within the 14-member grouping, which spans the 10 ASEAN states plus China, Hong Kong, Japan, and Korea. AMRO expects the cost shock to land unevenly.
Net energy importers face the sharpest headwinds, along with economies tied to the industrial inputs now in short supply. Continued tariff uncertainty adds a second layer of strain on top of the energy pressure.
That split helps explain why AMRO held the regional aggregate steady while flagging downside risk. Stronger first-quarter activity is offsetting the early drag from higher costs, but the balance could shift if the conflict drags on.
The adverse scenario
AMRO's baseline assumes oil prices average USD 95 per barrel in 2026. Its downside case is more severe.
If oil averages USD 125 per barrel and supply disruptions worsen, AMRO estimates regional growth could slow to 2.5 percent while inflation climbs to 3.5 percent. Stripping out the pandemic years, that would mark the highest regional inflation in more than a decade and the slowest growth since the Asian Financial Crisis of the late 1990s.
The office identified the duration and severity of the Middle East conflict as the most significant near-term risk to its outlook. The scenario is not a forecast, but it sets the boundary of how quickly conditions could deteriorate.
Policy response
He argued that policy needs to stay flexible as the shock develops. Near-term support, in AMRO's framing, should be targeted and temporary rather than broad.
The longer-term prescription points to structural work: strengthening energy security, building supply-chain resilience, and deepening regional integration. Those priorities reflect the lesson of the current episode, where exposure to imported energy and concentrated input supplies determines which economies feel the most pain.
AMRO plans to issue its next update in late July 2026. Until then, the outlook hinges on a variable outside the region's control, namely how long the conflict in the Middle East persists and whether the supply tightness in oil and industrial inputs broadens into something harder to contain.
