Economic momentum across Asia is expected to lose steam over the next two years as rising energy costs linked to Middle East tensions weigh on consumption, investment, and trade activity, according to a regional outlook.

The ASEAN+3 Macroeconomic Research Office (AMRO) projected that growth across ASEAN+3 will moderate to 4.0 percent in 2026 and remain at that level in 2027, down from stronger-than-expected expansion in 2025.

The region, which comprises the 10 ASEAN member states plus China, Japan, and South Korea, posted 4.3 percent growth last year, outperforming earlier forecasts despite global trade uncertainty and tariff-related disruptions. Inflation remained contained, while exports and investments were supported by strong technology demand, particularly in semiconductors and artificial intelligence-related industries.

That resilience, however, is now being tested by a surge in global energy prices. Higher oil and gas costs are expected to slow spending, delay investments, and reduce purchasing power across households and firms.

AMRO said headline inflation in the region could rise gradually from 0.9 percent in 2025 to 1.4 percent in 2026 and 1.5 percent in 2027, reflecting sustained pressure from energy markets.

The projections assume crude oil prices will stay above $90 per barrel before easing to between $75 and $85 in the latter half of 2026. However, AMRO warned that if geopolitical tensions worsen and prices remain above $100, regional growth could fall by 0.3 percentage points while inflation could increase by as much as 0.8 percentage points.

Beyond prices, prolonged conflict could also affect tourism flows and remittances, adding further strain to external balances in some economies.

Despite these risks, AMRO said ASEAN+3 is better positioned today to absorb shocks compared with previous decades. Energy intensity has declined significantly since 2000, power systems have diversified, and adoption of electric vehicles is expanding across several markets.

The report also highlighted deeper regional integration, noting that production networks across East and Southeast Asia have become more interconnected, with China, Japan, Korea, and ASEAN economies reinforcing each other’s roles in global supply chains.

On the demand side, the region now accounts for 28 percent of global final consumption, while nearly 30 percent of value-added exports are absorbed within ASEAN+3, reducing reliance on external markets such as the United States.

AMRO stressed the importance of policy flexibility to avoid risks such as stagflation. It urged central banks to remain supportive of growth while staying ready to respond if inflation spreads more broadly.

It also called for targeted fiscal support for vulnerable sectors rather than broad price controls, which could strain public finances.

“Preserving orderly market conditions and financial stability remains essential,” the report said.

For the longer term, AMRO emphasized accelerating the green transition, diversifying energy sources, and strengthening regional cooperation to improve resilience against future energy shocks.