The ongoing Middle East conflict is adding fresh pressure to the economic outlook of Asia and the Pacific, disrupting energy and commodity markets, and trade and connectivity routes at a time of already high global economic uncertainty, according to a new United Nations report.
The Economic and Social Survey of Asia and the Pacific 2026, released by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), highlights that rising energy and food prices, along with weaker global demand, are dimming economic growth prospects and increasing the cost of living across the region.
Low-skilled workers and low-income households are particularly vulnerable, as they are more exposed to rising living costs and have limited access to social protection.
High public debt vulnerabilities and likely increase in interest rates due to higher inflation expectations may constrain the ability of governments to respond to the latest economic shocks.
"Policymakers are navigating rising global trade protectionism, economic policy uncertainty and geo-economic fragmentation. Their eventual impact would be disproportionate for countries with smaller room for policy support and for people having limited access to social protection," underscored Armida Salsiah Alisjahbana, Under-Secretary-General of the United Nations and Executive Secretary of ESCAP.
Shifting towards more resilient economic growth
ESCAP projects, under considerable uncertainty, developing economies in the region to grow by 4.0% in 2026 on average, down from 4.6% in 2025, and inflation to rise to 4.6% in 2026 on average, up from 3.5% in 2025, reversing recent gains in inflation stability. Despite this moderation, the region is expected to remain the fastest-growing developing region globally.
However, sustaining this performance will require a gradual shift from a primarily export-driven growth approach towards stronger domestic and regional sources of demand. Key priorities in this vein include boosting productivity, expanding social protection, improving access to finance, and strengthening digital and physical connectivity across the region. Deeper regional cooperation will be critical to offset the effects of global economic fragmentation.
Aligning energy transition, climate goals with economic policy
The ongoing global energy crisis is yet another wakeup call for Asia and the Pacific to strengthen energy resilience, including through homegrown renewable energy. An energy transition could help reverse years of regression in Sustainable Development Goal 13 on Climate Action.
"This is especially critical today, as we witness in real time the effects of a dependence on fossil fuels, where every conflict risks sending shockwaves through the global economy," said United Nations Secretary-General António Guterres.
However, the report cautions that transition policies must be carefully designed to avoid unintended socio-economic consequences. Measures to reduce reliance on fossil fuel, expand renewable energy and improve energy efficiency could increase inflation, weaken fiscal positions, increase poverty and widen income inequality, if not implemented in a calibrated and consultative manner.
The report also finds that economic policy issues are still only weakly integrated into most national transition strategies. Policy choices will need to reflect country-specific conditions. A gradual fossil fuel subsidy cut would help cushion people's purchasing power, especially where fiscal support to mitigate higher energy prices is constrained.
Meanwhile, countries with deeper financial markets can mobilize private capital for green investment. Many least developed countries and small island developing States will require stronger international support to ensure access to affordable and reliable energy.
Political economy insights can further support these efforts, according to the 2026 Survey. For example, governments can time energy transition when political popularity is high, while creating new beneficiaries in renewable energy sectors to endure reform.
The report also highlights how behavioral insights can boost policy uptake, such as increasing adoption of low-carbon technologies through peer comparisons or improving public acceptance of carbon pricing when revenues are used transparently and equitably.
Read the full report: https://www.unescap.org/kp/2026/survey2026
Watch the launch of the report: https://webtv.un.org/en/asset/k1o/k1ofezzqyy
