ADB Cuts Asia-Pacific Growth Forecasts Amid Trade Tensions and Weak Demand

The Asian Development Bank (ADB) has revised downward its economic growth forecasts for developing countries in Asia and the Pacific for both 2025 and 2026, as the region grapples with mounting external challenges, including rising U.S. tariffs, global trade uncertainty, and weakening domestic demand. The latest figures were published in the Asian Development Outlook (ADO) July 2025.

According to the updated report, the regional economy is now projected to grow 4.7% in 2025, a 0.2 percentage point decrease from April’s forecast. For 2026, the projection has been trimmed slightly to 4.6%, down from the earlier 4.7% estimate.

The report signals a cautious tone from the ADB amid an increasingly complex global economic landscape, particularly for export-driven economies in the Asia-Pacific region that are vulnerable to external shocks.

Growth Outlook Dampened by Trade Disruptions

ADB cited escalating trade tensions and particularly the impact of higher U.S. tariffs as central to the weaker outlook. These developments are expected to dampen exports and investor confidence in a number of economies, especially those heavily reliant on global trade flows and integrated supply chains.

“Asia and the Pacific has weathered an increasingly challenging external environment this year. But the economic outlook has weakened amid intensifying risks and global uncertainty,” said ADB Chief Economist Albert Park.

The report warned that further deterioration in global trade conditions, including a potential escalation in geopolitical conflicts or energy supply disruptions, could further constrain growth. A key area of concern remains the real estate sector in the People’s Republic of China (PRC), where continued instability could ripple through regional supply chains and investor sentiment.

Country-Level Outlooks: Mixed Signals Across the Region

China

The ADB kept its forecasts for the PRC unchanged at 4.7% in 2025 and 4.3% in 2026. The ADB expects that policy stimulus measures targeting consumption and industrial production will largely offset the persistent drag from the country’s weak property market and subdued export activity. However, a sharper-than-expected downturn in real estate could derail recovery momentum.

India

India, the region’s second-largest economy, also saw a downward revision, with growth now forecast at 6.5% in 2025 and 6.7% in 2026, down 0.2 and 0.1 percentage points respectively from April projections. These adjustments reflect the anticipated impact of trade uncertainties, weakened external demand, and rising tariffs which are expected to affect both exports and private investment flows.

Southeast Asia

Southeast Asia is forecast to bear the brunt of worsening trade conditions, given its high integration in global supply chains. The subregion’s growth forecast has been slashed to 4.2% for 2025 and 4.3% for 2026, representing a significant downgrade of about half a percentage point for both years. This reflects weak demand for manufactured goods, continued geopolitical friction, and rising logistical costs.

Caucasus and Central Asia

One of the few bright spots in the report is Caucasus and Central Asia, where growth forecasts have been upgraded to 5.5% in 2025 and 5.1% in 2026, both up by 0.1 percentage point. This revision reflects an expected increase in oil production and improving commodity export revenues, which will help cushion the region from global headwinds.

Inflation Eases, Providing Some Relief

Despite slowing growth, inflation in developing Asia and the Pacific is expected to remain moderate, offering some policy space for governments to stimulate their economies. The ADB now forecasts regional inflation at 2.0% for 2025 and 2.1% for 2026, compared to its previous projections of 2.3% and 2.2%, respectively.

This easing trend is attributed to declining global oil prices and strong agricultural output, which are helping to alleviate food price pressures across much of the region.

Policy Recommendations and Regional Strategy

ADB’s Chief Economist emphasized the importance of strengthening economic fundamentals and deepening regional integration to weather current and future shocks.

“Economies in the region should continue strengthening their fundamentals and promoting open trade and regional integration to support investment, employment, and growth,” Park said.

The report underscores the need for countries to:

• Diversify trade partners and markets to reduce dependence on major economies

• Invest in digital infrastructure and innovation to boost productivity

• Enhance macroeconomic stability and reduce fiscal vulnerabilities

• Focus on green and inclusive growth strategies that promote long-term sustainability

Outlook: A Year of Uncertainty, But Opportunities Remain

While the overall economic environment has become more challenging, ADB maintains that Asia and the Pacific remain resilient, with opportunities for reform-driven growth and greater regional cooperation. As the global economy recalibrates in the face of trade realignments, supply chain shifts, and geopolitical tensions, countries in the region must adapt swiftly to ensure stable and inclusive growth.

In conclusion, the updated ADO reflects the fragile nature of the global recovery and the complex interplay between domestic and international forces shaping the future of the Asia-Pacific economies. With proactive policy responses and regional solidarity, the region can still chart a path toward sustainable growth and economic transformation in the years ahead.