Singapore, 10 April 2026 – Southeast Asia’s economic growth is expected to remain resilient in 2026, with domestic demand emerging as a key stabilising force, provided geopolitical tensions in the Middle East ease in the near term, according to the Asian Development Bank.
Economists from the ADB project that developing Southeast Asia, covering ASEAN economies excluding Singapore, will grow by approximately 4.7% in 2026, only slightly below the 4.8% recorded in 2025, assuming energy prices stabilise following recent geopolitical shocks.
Domestic Demand Becomes the Growth Engine
With external conditions becoming increasingly volatile, the region is expected to lean more heavily on internal drivers such as household consumption and public investment.
ADB noted that domestic demand is likely to remain resilient throughout 2026, supported by the lagged effects of accommodative monetary policies and increased government spending across the region.
Countries such as Indonesia and Timor-Leste are projected to benefit from strong consumption trends, while reconstruction efforts in Myanmar could drive a rebound in domestic activity after economic contraction in 2025.
Energy Prices Remain the Critical Variable
The outlook, however, hinges heavily on the trajectory of global energy prices. ADB’s baseline scenario assumes that oil and gas prices peaked in March 2026 and will gradually ease toward pre-conflict levels by year-end.
Should the Middle East conflict stabilise early, the economic impact on Southeast Asia would likely remain manageable. However, prolonged disruptions, especially involving key supply routes like the Strait of Hormuz—could significantly alter the outlook.
ADB warned that if oil prices rise to around US$130 per barrel and remain elevated, regional growth could be reduced by approximately 0.7 percentage points over 2026–2027. In a more severe scenario, with prices reaching US$155, the cumulative growth loss could deepen to 1.3 percentage points.
Inflation and Stagflation Risks
Even under a stabilisation scenario, inflationary pressures are expected to rise across the region, driven by higher energy and food production costs.
ADB cautioned that prolonged geopolitical tensions could trigger stagflationary conditions, where rising prices erode household purchasing power, ultimately weakening consumption and undermining domestic demand.
This dynamic is particularly critical for Southeast Asia, where consumption plays a central role in economic growth.
Uneven Growth Across ASEAN
While domestic demand provides a cushion, growth across ASEAN is expected to remain uneven.
Economies such as Malaysia, Thailand, and Vietnam may experience slight slowdowns due to weaker global trade and external headwinds. However, sectors like technology exports could offer partial support, helping offset some of the drag from global uncertainties.
Resilience Despite Global Shocks
Despite rising risks, ADB emphasised that the long-term growth trajectory of Southeast Asia remains intact and less severely impacted compared to past crises such as the 2008 global financial crisis or the Covid-19 pandemic.
The region continues to benefit from structural strengths, including a growing middle class, expanding digital economies, and ongoing infrastructure investment, all of which reinforce domestic demand as a core growth pillar.
