AMRO today released its annual flagship report, the ASEAN+3 Regional Economic Outlook (AREO) 2026, projecting regional growth of 4.0 percent in both 2026 and 2027. While the region has been supported by stronger-than-expected growth, low inflation, and improved external buffers, the ongoing conflict in the Middle East and disruptions to the global energy supply have materially increased downside risks to the outlook.
“The ASEAN+3 region entered 2026 from a position of strength, but the Middle East conflict has shifted the balance of risks to the downside,” said AMRO Chief Economist Dong He. “That said, the region is better placed than in earlier episodes to navigate an energy shock – its economies are more energy-efficient and less oil-dependent, entered this period with low inflation, and most retain meaningful policy space to respond.”
The region expanded by 4.3 percent in 2025, well above the 3.8 percent projected in the immediate aftermath of the April 2025 tariff shock. Economic activity remained supported by firm domestic demand, robust exports – boosted by AI-driven semiconductor demand – sustained investment, and strengthening intraregional economic linkages. Amid higher global energy prices, AREO 2026 forecasts headline inflation to rise from 0.9 percent in 2025 to 1.4 percent in 2026 and 1.5 percent in 2027.
The impact of the Middle East conflict on the region will hinge on its duration. If prolonged, the shock could become more widespread and persistent, extending beyond energy markets to affect industrial inputs, logistics, food prices, tourism, and remittances. Its effects are also likely to vary across member economies depending on their exposure to imported energy and key commodities, available buffers, and domestic policy space.
He said: “As the global economy is battered by one shock after another, preserving policy flexibility is critical to preventing worse outcomes such as stagflation. Central banks should maintain orderly market conditions and financial stability, and act decisively should supply shocks lead to sustained inflation. On the fiscal side, governments should prioritize targeted support for vulnerable groups, while avoiding broad-based measures that could fuel inflation or undermine fiscal sustainability.”
The report also highlights a fundamental structural transformation underpinning the region’s resilience. Over the past two decades, ASEAN+3 has become more regionally anchored, with denser and more interconnected production networks and a decisive shift toward intraregional sources of demand. The share of the region’s value-added exports to the US has declined from about one-third to 20 percent, while the share absorbed within the region has risen to nearly 30 percent.
ASEAN+3 is now the world’s largest market, accounting for 28 percent of global final demand. “The long-standing view of the region as the world’s factory – producing primarily for external demand outside the region – is increasingly outdated,” said He. “Deepening regional cooperation, accelerating the green transition, and maintaining open trade and investment flows will be essential to sustaining this structural transformation and strengthening resilience.”
