Asian Development Outlook (ADO) September 2025

Economic Forecasts for Asia and the Pacific: September 2025

Developing Asia’s growth forecasts are trimmed to 4.8% in 2025 and 4.5% in 2026, down by 0.1 and 0.2 percentage points from April. The revisions reflect offsetting factors. The updated trade agreements and tariffs led to a broad shift toward higher US tariffs, which will weigh on the region’s exports and growth. However, fiscal and monetary policy responses are expected to cushion the impact. Inflation in developing Asia is projected to ease further in 2025, driven by lower energy and food prices, before edging up in 2026. The region’s 2025 inflation forecast is revised down to 1.7%, from 2.3% in April. For 2026, inflation is expected to edge higher to 2.1%, albeit marginally slower than April’s forecast of 2.2%, partly due to normalization of food prices.

GDP Growth: Developing Asia

  • 2025 forecast
    4.8%
  • 2026 forecast
    4.5%

Inflation: Developing Asia

  • 2025 forecast
    1.7%
  • 2026 forecast
    2.1%

Trade agreements have eased tensions, but unresolved US–People's Republic of China (PRC) negotiations and elevated uncertainty keep risks elevated. Major trading partners, including several developing Asian economies, agreed to new trade deals with the US before the 1 August deadline. This has reduced but not removed global trade risks. Other risks include geopolitical tensions, further deterioration in the PRC’s property market, and possible financial market volatility.

For Policymakers

The Asian Development Outlook outlines policy challenges and provides recommendations at a country level.

Download our analysis by subregions

Join the conversation. #ADO2025

Developing Asia comprises the 46 members of the Asian Development Bank listed below by geographic group.

  • Caucasus and Central Asia comprises Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
  • East Asia comprises the People’s Republic of China; Hong Kong, China; the Republic of Korea; Mongolia; and Taipei,China.
  • South Asia comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
  • Southeast Asia comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste, and Viet Nam.
  • The Pacific comprises the Cook Islands, Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
‌
‌
‌

Capital Inflows to Emerging Market Economies: Global Factors and the Role of Fundamentals

The analytical chapter explores the influence of global factors on foreign capital inflows to emerging market economies (EMEs) and the stabilizing effect of domestic fundamentals. The issue is particularly important in light of heightened global uncertainty in trade policy, persistent geopolitical risks, and shifts in global monetary policies. The impact of four global factors and four domestic factors on four types of foreign capital inflow in EMEs is examined. The global factors comprise US monetary policy, global risk aversion, trade policy uncertainty (TPU), and geopolitical risk (GPR); while the domestic factors are GDP growth, trade openness, financial development, and rule of law. The types of EME foreign capital inflows considered are portfolio debt, portfolio equity, cross-border loans, and foreign direct investment.

EME capital inflows have tended to run through boom–bust cycles over the past 3 decades, driven by shifts in global financial conditions. The US Federal Reserve’s injection of global liquidity under it’s quantitative easing (QE) policy at the end of 2008 resulted in historically low long-term US interest rates, which triggered EME capital inflows as investors searched for yield. When QE concluded at the end of 2014, tighter global financial conditions marked a further shift in dynamics, as foreign capital outflows from EMEs initially materialized. These later reverted as risk sentiment improved and global liquidity conditions stabilized. Based on a panel of 36 EMEs, the chapter focuses on understanding the global and domestic drivers of EME capital inflows in the current post-QE period, from 2015 until 2024, given that this is of most relevance to policymakers.

While EME portfolio debt and equity inflows are negatively related to US monetary policy and trade policy uncertainty, trade openness is a key counterweight. Lower US interest rates due to a slowing US economy could trigger foreign capital inflows to EMEs, but persistent US inflation could prompt tighter US monetary policy and portfolio reallocation by global investors out of EMEs. TPU is also found to be negatively associated with EME portfolio debt and equity inflows, with rising TPU likely to lead to flight-to-safety flows. On domestic factors, higher trade openness is identified as a key driver of EME portfolio debt and equity inflows. Moreover, the magnitude of the trade openness effect is greater than that of US monetary policy and TPU.

EME cross-border loans are strongly negatively affected by escalations in geopolitical risk, but financial development helps boost foreign lending inflows. Heightened GPR disincentivizes international banks to lend abroad. Under these circumstances, international banks are likely to tighten credit standards and reallocate lending toward safer jurisdictions. However, the analysis also reveals a significant positive role for financial development in attracting foreign lending. While this effect is somewhat smaller than the GPR effect, efficient domestic financial systems with sound prudential and supervisory frameworks help to reassure international bank lenders in EMEs.

Geopolitical risk significantly deters foreign direct investment (FDI) inflows into EMEs, as do trade policy uncertainty and global risk aversion, while GDP growth acts as the main domestic driver of inflows. Elevated GPR and TPU significantly raise the risk on long-term investment such as FDI. Higher global risk aversion, which reflects weaker investor sentiment, also discourages FDI inflows. The effects on FDI are most pronounced due to GPR. On the other hand, the analysis shows that GDP growth can significantly boost FDI inflows, although its impact remains smaller than that of the global factors overall.

Boom-bust cycles in EME capital inflows around major shifts in global liquidity expose financial stability risks. The chapter highlights key EME financial vulnerabilities around elevated trade policy uncertainty and geopolitical tensions, and the path of US monetary policy. With stronger EME integration in global financial markets, policies that enable a more productive allocation of capital and less destabilizing reversals become ever more important.

The chapter indicates that EME policymakers can strengthen resilience to global shocks with sound fundamentals. Enhanced trade openness signals a greater commitment to open markets and globalization. This tends to boost an economy’s growth prospects and its attractiveness to global equity investors. A greater diversity of export revenue sources can also help to assure more risk-averse global bond investors. For cross-border loans, financial development is a key driver of inflows, helping to offset the negative impact of GPR. Well-developed financial systems typically comprise efficient banking infrastructure, deep domestic credit markets, and robust prudential and regulatory frameworks. These factors strengthen the capacity of banks and firms to intermediate financing, better manage financial risks, and access international capital markets. In addition, domestic policies that support robust and sustainable growth can help sustain FDI inflows into EMEs. The results also suggest that robust macroprudential and capital flow management policy frameworks can complement solid domestic fundamentals to address abrupt shifts in capital flows.

Capital Inflows to Emerging Market Economies: Global Factors and the Role of Fundamentals

The sensitivity of foreign capital inflows to shifts in global financial conditions can lead to boom-bust cycles and macro-financial stability risks in emerging market economies (EMEs). The contribution of EME capital inflows to economic growth is well-documented, particularly through the expansion of credit and the deepening of domestic capital markets. However, their volatility, often driven by shifts in global liquidity and investor sentiment, can threaten the macro-financial stability of EMEs.

The analytical chapter explores the influence of global factors on foreign capital inflows to EMEs and the stabilizing effect of domestic fundamentals. The issue is particularly important in light of heightened global uncertainty in trade policy, persistent geopolitical risks, and shifts in global monetary policies. The impact of four global factors and four domestic factors on four types of foreign capital inflow in EMEs is examined. The global factors comprise US monetary policy, global risk aversion, trade policy uncertainty, and geopolitical risk; while the domestic factors are GDP growth, trade openness, financial development, and rule of law. The types of EME foreign capital inflows considered are portfolio debt, portfolio equity, cross-border loans, and foreign direct investment. The following questions are addressed:

  • Have EME capital inflow dynamics shifted over time?
  • Are EME capital inflows more sensitive to particular global factors and are there variations in the sensitivity of different types of capital inflows?
  • How important are domestic factors in driving EME capital inflows?
  • Which domestic fundamentals are important?

Special Analysis on...

Trade Policy—The Risks of Re-Escalation of US–PRC Trade Tensions and Other Tariffs

Two adverse tariff scenarios are considered. All scenario results are expressed as deviations from a baseline that incorporates tariff changes up to 4 September. As such, the baseline includes: the revised "reciprocal" tariffs that came into effect from 7 August, the additional 25% tariff on India, the additional 40% tariff on Brazil, and the additional US tariffs for automobiles, automobile parts, aluminum, steel, and copper. The two tariff scenarios are described below, with tariff changes assumed to apply throughout the 2025–2026 forecast horizon:

  • US-PRC re-escalation scenario: Assumes imposition of additional 125% tariffs by both the US and PRC if retaliatory measures resume after the truce expires on 10 November 2025.
  • Tariffs on semiconductors and pharmaceuticals: Assumes 100% tariffs on semiconductors and 25% tariffs on pharmaceuticals.

A renewed escalation of US–PRC trade tensions would weigh on global growth. With the truce set to expire on 10 November, re-escalation could occur immediately thereafter, with the largest effects materializing in 2026. Over 2025–2026, US GDP growth would decline by 1.8 percentage points, the PRC’s by 1.3 points, and global growth by 0.9 points. Developing Asia excluding the PRC would see a more modest decline of 0.3 percentage points. Inflation effects diverge, however. In developing Asia excluding the PRC, cumulative inflation would fall by 0.5 points as the slowdown in economic activity resulted in a 7ドル.91 decline in oil prices, leading to disinflationary pressures. In contrast, the tariff escalation would push inflation higher in the US (up 0.6 points) and the PRC (up 1.2 points) over the same period due to the direct impacts of higher tariffs on imported goods and production inputs.

Shortfall Persists in PRC Travelers to Southeast Asia

Tourist arrivals in Southeast Asia from the PRC remain below pre-pandemic levels, with steep shortfalls in Thailand, Cambodia, and the Philippines. This reflects PRC tourists increasingly favoring domestic and alternative destinations, as well as country-specific barriers such as safety concerns and restrictive visa policies. Targeted policy action can help address these barriers and accelerate the tourism recovery, leading to meaningful macroeconomic gains.

A full recovery of PRC tourism could boost GDP in Cambodia, Thailand, and the Philippines. Before the pandemic, tourism contributed 14% to Cambodia’s GDP, 11% in Thailand, and 2% in the Philippines. The current shortfall in PRC visitors is equivalent to about 2.3% of GDP in Cambodia, 2.0% in Thailand, and 0.4% in the Philippines. Closing this gap would thus deliver a meaningful economic lift.

To expedite the return of PRC tourists, governments should combine policies addressing practical barriers and travelers’ perceptions. Easing visa requirements by expanding visa-free or e-visa options would make travel more accessible, while enhancing safety through visible law enforcement and clear communication could reassure potential visitors. Marketing campaigns within the PRC can also help reshape perceptions and highlight each country’s unique attractions. By addressing both entry barriers and travelers’ concerns, Southeast Asia could attract more visitors from the PRC and revitalize its tourism sector.

The Federal Reserve at a Crossroads: Potential Impacts of Alternative US Policy Rate Paths

The outlook for US monetary policy is clouded by uncertainty, as the Federal Reserve (Fed) encounters conflicting signals from inflation and the labor market.

The path of future US monetary policy can impact developing Asia’s outlook. US monetary policy can have a direct impact on developing Asian economies through aggregate demand and exchange rates. To assess the potential impacts of alternative US policy rate paths on the region’s outlook, this box conducts model-based simulations of two risk scenarios:

  • Faster-than-expected interest rate cuts. Under this scenario, the US economy is hit by a sequence of negative demand shocks that lead to a decline in GDP growth and inflation rates, prompting the Fed to cut rates faster than currently expected. Such shocks can be interpreted as a labor market slowdown and a deterioration of consumer and business confidence amid persistently high economic policy uncertainty.
  • High-for-longer interest rates. Under this scenario, the US economy is hit by a mix of positive demand and adverse supply shocks that lead to an acceleration in inflation and slightly faster GDP growth. This prompts the Fed to keep interest rates higher throughout 2026. Such shocks can be interpreted as upside pressures on prices coming from higher tariff rates and tightening labor markets due to restrictive immigration policies, alongside expansionary fiscal policy and a recovery in sentiment that counterbalances the adverse supply effects of higher costs and declining supply of labor.

Immigration Slowdown Complicates Monetary Policy in the United States

Recent changes to US immigration policy appear to be reducing labor supply. Net migration into the US was strong post COVID-19, with foreign-born workers accounting for most of the increase in the US labor force and employment between 2021 and 2024. A slowdown in immigration not only constrains the supply of workers but also curbs demand-side drivers of employment growth.

These developments complicate the job of the Federal Reserve in evaluating data releases as it sets monetary policy. The 3-month lagged moving average of net job creation slipped to about 35,000 in July–August from over 230,000 in January. At the same time, the unemployment rate, though edging higher, has remained close to levels seen in the second half of 2024 while initial unemployment claims have remained broadly stable through 2025.

Lower immigration will translate into structurally lower GDP growth rates unless employment rates and/or productivity rise. The experience of other advanced economies suggests that when the working-age population declines, increasing labor force participation and employment can play an important compensating role. In the US, however, participation has trended down over the past 2 decades, while fertility rates have also declined and are now well below the replacement rate of 2.1 births per woman.

Outlook by Subregion

Caucasus and Central Asia

In the Caucasus and Central Asia, the growth projection is raised for 2025, driven by stronger prospects in Kazakhstan, but lowered for 2026 due to falling hydrocarbon production in Azerbaijan. The subregion is now expected to grow by 5.5% in 2025, before moderating to 4.9% in 2026.

More GDP forecasts

Kazakhstan’s forecasts are raised to 5.3% in 2025 and 4.3% in 2026, supported by increased oil production and ongoing public infrastructure investment. Georgia’s 2025 growth projection is adjusted upward to 7.0% on robust H1 performance driven by domestic demand. The 2026 projection remains at 5.0%. In contrast, Azerbaijan’s growth projections are lowered to 2.4% in 2025 and 2.0% in 2026, amid weaker hydrocarbon production. The Kyrgyz Republic’s forecast is lowered to 8.3% in 2025 and 8.4% in 2026, due to expected moderation in reexport trade flows. Turkmenistan’s 2025 growth forecast is revised down to 6.3%, reflecting moderate growth in hydrocarbon production, while 2026 forecast remains unchanged at 6.0%.

Higher utility prices, currency depreciation, and lagged effects of monetary policy easing will drive inflation higher in the Caucasus and Central Asia. Headline inflation for the subregion is expected to accelerate to 7.7% in 2025 and 6.6% in 2026, up by 0.8 and 0.7 percentage points compared to April forecasts.

More inflation forecasts

In Kazakhstan, inflation projections are revised up to 10.5% in 2025 and 8.4% in 2026. Price dynamics will be shaped by currency depreciation and rising utility costs, as the government continues implementing its Tariff-in-Exchange-for-Investment policy to modernize utilities infrastructure. Moreover, the Kazakh government announced that it would increase the value-added tax rate from 12% to 16% next year, amplifying inflationary pressures. The Kyrgyz Republic’s inflation forecasts are increased to 7.0% in 2025 and 8.0% in 2026, primarily due to strong domestic demand and utility tariff adjustments. Armenia’s inflation outlook is raised to 3.5% in 2025, due to higher-than-expected inflation over January to July as the effects of loose monetary policy lingered. The 2026 projection is unchanged at 2.8%. In contrast, Tajikistan’s currency appreciation is expected to lower inflation to 4.5% in 2025 and 5.2% in 2026. Turkmenistan’s inflation forecast is reduced to 4.0% in 2025 and 5.0% in 2026, from 6.0% in April, as monetary policy remains tight. Inflation projections in the other economies in the subregion remain in line with April forecasts.

East Asia

In the PRC, the growth forecast is maintained at 4.7% in 2025 and 4.3% in 2026 The outlook reflects cautious optimism amid a prolonged slowdown in the domestic property market, persistent trade uncertainty, and higher US tariffs.

More GDP forecasts

Rising US trade barriers are anticipated to dampen export growth over the forecast horizon by directly reducing demand for PRC goods from the US and indirectly from the rest of the world, as global growth slows. Nonetheless, targeted government policies are expected to mitigate headwinds and sustain domestic economic activity. These include continued support for consumer goods trade-in and equipment upgrade programs; a CNY500 billion relending facility aimed at boosting the service sector and elderly care; the gradual implementation of free pre-school programs; and higher investment in public infrastructure projects.

Forecast growth for Hong Kong, China is revised down to 2.2% for 2025 and 2.0% for 2026, as weakening global trade and higher tariffs weigh on exports and trade-related financial services. For the Republic of Korea, growth is projected at 0.8% in 2025 and 1.6% in 2026, down from April forecasts. The downgrade reflects an expected decline in exports due to a 15% tariff under the new trade deal with the US, as well as subdued investment driven by a weak property sector. Mongolia’s growth projections are adjusted down to 5.7% for both 2025 and 2026 on lower mineral exports and reduced fiscal spending. Bucking the trend, Taipei,China’s 2025 growth projection is revised sharply upward from April, by 1.8 percentage points to 5.1%, driven by strong exports of AI-related products. However, growth is expected to decline to 2.3% in 2026 as domestic demand remains subdued, higher tariffs dampen export activity, and AI-related spending moderates.

The PRC’s inflation forecast is downgraded due to lower food and oil prices. Consumer price inflation is now projected at zero in 2025 and 0.4% in 2026, down 0.4 and 0.3 percentage points, respectively, from April.

More inflation forecasts

Ample pork supply and falling prices for several domestically manufactured goods, including electric vehicles, are anticipated to limit price pressures. While government trade-in programs may help boost sales, intense price competition is likely to keep the prices of durable goods in check.

For Hong Kong, China, inflation is forecast at 1.6% for both 2025 and 2026, due to weak domestic and external demand. The forecast for Taipei,China is lowered to 1.8% in 2025 and 1.5% in 2026 on moderate food and energy prices and currency appreciation. Inflation in Mongolia will remain high at 8.6% in 2025, lower than the previous forecast, as planned increases in utility tariffs are postponed, and at 7.2% in 2026, higher than projected in April, as tariffs are raised. The Republic of Korea’s inflation forecasts remain unchanged from April at 1.9% for both 2025 and 2026.

South Asia

The expectation of a larger impact from US tariffs also led to a downward revision of South Asia’s growth outlook, now projected at 5.9% in 2025 and 6.0% in 2026.

More GDP forecasts

India faces the steepest US tariff hikes among developing Asian economies, prompting a downgrade in its growth outlook. For fiscal year (FY) 2025, growth is now projected at 6.5%, down from 6.7% in April. Effective 7 August, the US imposed a 25% reciprocal tariff on Indian exports, with a further increase to 50% from 27 August. The sharp escalation in tariffs is expected to weigh heavily on key export sectors such as textiles, ready-made garments, jewelry, shrimp, and chemicals. For FY2026, growth is revised down to 6.5%. Afghanistan’s projections are reduced to 1.8% in FY2025 and 1.7% in FY2026 due to reduced international humanitarian aid, limited access to external finance, and fiscal constraints. In Bhutan, the 2025 growth forecast is revised down to 8.1%, reflecting slower-than-expected progress in the operation of the Punatsangchhu II Hydroelectric Power Plant, largely due to the delays on agreement on power tariffs with India. The 2026 forecast remains unchanged. The FY2025 growth slightly exceeded expectations in Bangladesh, Nepal, and Pakistan. However, the FY2026 outlook is lowered for Bangladesh, due to the impact of US tariffs on exports, and for Nepal, mainly due to ongoing domestic political instability. Pakistan’s FY2026 outlook remains unchanged from April. Maldives’ 2025 growth outlook is unchanged, while the 2026 forecast is revised upward on strong tourism and fishery sectors. Sri Lanka’s growth forecast for 2025 is unchanged, but the 2026 projection is revised down, as the 20% US tariff is expected to weaken exports and dampen consumption due to potential job losses.

Lower food prices from improved agricultural output and favorable weather conditions are expected to reduce South Asia’s inflation in 2025. The 2025 inflation forecast for the subregion is lowered to 3.7%, down by 1.2 percentage points from April. Inflation is anticipated to pick up to 4.7% in 2026 on normalizing food prices, as well as currency depreciation in some cases.

More inflation forecasts

The FY2025 inflation projection for India is revised downward to 3.1%, reflecting subdued global oil prices and a faster-than-expected decline in food prices due to better agricultural production. However, food prices are expected to normalize in FY2026, leading to an upward revision of the inflation forecast to 4.2%. Pakistan’s actual FY2025 inflation is recorded at 4.5%, from April’s forecast of 6.0%, on continued moderation in food and oil prices. Inflation is expected to rise to 6.0% in FY2026 due to flood-related supply chain disruptions affecting food prices and higher gas tariffs. Sri Lanka’s 2025 inflation forecast is reduced to 0.5% mainly due to falling energy prices, while 2026 outlook remains unchanged at 4.5%. Maldives’ inflation forecast is revised downward to 4.5% in 2025, owing to temporary discounts on utility bills in H1, including a reduction in electricity tariffs. The government also postponed its planned implementation of subsidy reforms to prevent further price increases. Inflation is expected to further decline to 3.5% in 2026, albeit higher than April’s forecast of 2.2%, due to repayments of external debt that could strain foreign exchange reserves and put downward pressure on the currency. Deflation continued in Afghanistan, albeit at a slower pace of –4.2% in FY2025, compared to the –5.3% projected last April. Inflation for FY2026 is revised to 1.0%, down from 5.0% in April, due to currency appreciation. In Bhutan, the inflation outlook for 2025 is lowered to 3.2% as food prices are expected to ease in H2. In contrast, the inflation forecast for next year is raised to 3.7%, in line with the expected increase in food prices in India.

Southeast Asia

Projected growth for Southeast Asia is lowered. The subregional growth forecast is revised down to 4.3% for 2025 and 2026, compared to 4.7% for both years in April. Growth projections for 2025 have been reduced for nearly all Southeast Asian economies.

More GDP forecasts

Brunei Darussalam’s growth outlook is downgraded to 1.0% in 2025 and 1.5% in 2026, as slower growth in key trading partners amid higher US tariffs weighs on demand for oil, liquefied natural gas, and petrochemicals. Cambodia’s growth is also expected to ease, with the forecast revised down to 4.9% in 2025 and 5.0% in 2026, due to border tensions with Thailand and trade uncertainty. Indonesia’s growth outlook is reduced slightly to 4.9% in 2025 and 5.0% in 2026 to reflect weaker global demand, albeit domestic demand is expected to remain robust. In Malaysia, growth is forecast at 4.3% in 2025 and 4.2% in 2026, each down by 0.6 percentage points from April projections, due to the impact of restrictive trade policies. In the Philippines, forecasts are lowered to 5.6% in 2025 and 5.7% in 2026 as global trade uncertainty dampens investor sentiment. However, low inflation and an accommodative monetary policy are expected to support domestic demand in the near term. Reflecting the broader impact of global policy uncertainty and higher tariffs, Singapore’s growth projections are also lowered, with a slight adjustment to 2.5% for 2025 and a sharper reduction to 1.4% for 2026. Thailand’s economy is anticipated to grow by 2.0% in 2025, down from 2.8% in April, due to slower export growth amid tariff hikes and weaker-than-expected tourist arrivals. Growth is expected to slow to 1.6% in 2026. Timor-Leste’s 2025 growth projection is revised down to 3.8%, partly due to base effects, and is projected to continue slowing to 3.4% in 2026 amid fiscal consolidation. Myanmar’s 2025 growth forecast has been cut sharply to –3.0% from 1.1% in April, as the 7.7-magnitude earthquake in March further deepened macroeconomic instability. In contrast, Viet Nam’s growth outlook for 2025 is raised to 6.7%. The adjustment is driven by continued policy stimulus and strong growth in H1, partly due to frontloading of export. Growth is expected to moderate to 6.0% in 2026.

Southeast Asia’s inflation forecasts are revised down for both 2025 and 2026 on lower energy and food prices Inflation projections for the subregion are cut to 2.5% in 2025 and 2.7% in 2026, with 2025 forecasts downgraded for all economies except Myanmar.

More inflation forecasts

In Brunei Darussalam, 0.3% deflation is now expected in 2025 due to weak domestic demand and lower global food prices, while inflation will pick up to 0.5% in 2026 due to an anticipated rebound in consumption and private investment. Cambodia’s inflation outlook is revised down to 2.0% for both 2025 and 2026 due to a weaker-than-expected increase in food prices along with falling fuel costs. In Indonesia, the inflation forecast for 2025 is reduced to 1.7% due to lower food prices following a good harvest, while the 2026 forecast remains unchanged at 2.0%. The inflation outlook for the Lao People’s Democratic Republic is revised down to 9.5% in 2025 and 8.5% in 2026 attributed to tightened monetary policy, with lower oil prices and food inflation also contributing to the decrease. The forecast for the Philippines is lowered to 1.8% for 2025, reflecting subdued global commodity prices and improved agriculture output, while it remains unchanged for 2026. Thailand’s inflation forecasts are revised down to 0.5% in 2025 and 0.8% in 2026, due to lower oil and food prices, as well as government subsidies for electricity and retail fuel consumption. Timor-Leste’s inflation projections are adjusted downward to 1.2% in 2025 and 1.9% in 2026 on lower food prices, weaker demand-side pressures, and moderating shipping costs. Viet Nam’s inflation projections are revised down to 3.9% in 2025 and 3.8% in 2026 due to lower global oil prices. In contrast, Myanmar’s inflation outlook is raised to 30.0% in 2025 and 23.0% in 2026, the highest in the region, as the disruptions from the 28 March earthquake are expected to further intensify inflationary pressures.

The Pacific

The Pacific’s 2025 growth forecast is revised upward, reflecting stronger mining activity in Papua New Guinea, the subregion’s largest economy. Growth in the subregion is projected to increase to 4.1% in 2025, before slowing to 3.4% in 2026.

More GDP forecasts

Papua New Guinea’s 2025 growth forecast is raised to 4.6%, driven by stronger mining performance from higher prices for precious metal and robust liquefied natural gas production following the launch of the Angore gas field. In 2026, growth is projected to ease to 3.6% as resource output is expected to moderate and a weaker external environment could dampen exports. In the Cook Islands, FY2025 growth is recorded at 10.4%, higher than April’s forecast, buoyed by strong tourist arrivals. However, growth is expected to slow sharply to 2.5% in FY2026 due to airline and hotel capacity constraints, while skilled labor shortages could delay infrastructure project implementation. In the Marshall Islands, growth forecasts are revised up to 3.0% for FY2025 and 3.5% for FY2026, supported by capital investments funded by the Compact of Free Association (COFA) and other development partners. Moreover, the increase in minimum wage is expected to boost household consumption. In contrast, downward revisions are made for both fiscal years in Palau on weaker-than expected tourism growth, and in Samoa on bleaker prospects for agriculture and fisheries. In the Federated States of Micronesia, the FY2025 forecast is revised down to 0.8% due to slower-than-expected utilization of COFA grants, while FY2026 outlook remains unchanged. The 2025 growth projections are also lowered for Nauru, due to lower-than-expected infrastructure spending, and for Vanuatu, due to delays in recovery and reconstruction efforts following the December 2024 earthquake. The 2026 outlook for these economies remains unchanged. In Fiji, the growth outlook is unchanged for 2025 but lowered for 2026 due to anticipated impacts of slower global growth.

The 2025 inflation forecast for the Pacific is downgraded, mainly due to a reduction in value-added tax in Fiji and easing food prices in some economies. The projection for the subregion is adjusted down to 3.0% in 2025 and 3.4% in 2026.

More inflation forecasts

In Fiji, the 2025 inflation forecast is significantly reduced to 0.5%, from 2.6% in April, due to a reduction in the value-added tax, a bus fare subsidy, and lower custom duties in several food items starting August 2025. The 2026 forecast is also lowered to 1.0% as these policies continue to affect prices alongside a decline in global oil prices. Actual FY2025 inflation in the Cook Islands, Niue, Samoa, and Tonga is weaker-than-expected, mainly due to lower food and other commodity prices. In Vanuatu, the 2025 forecast is revised down to 1.5% due to a slower increase in food prices and deflation in housing utilities, communication, and clothing and footwear, while the 2026 forecast remains unchanged. In contrast, in Kiribati, upward adjustments in fuel prices and electricity tariffs to improve the sustainability of state-owned enterprises are expected to result in higher inflation for both 2025 and 2026. In Nauru, the inflation estimate was 6.5% in FY2025, higher than projected in April, and the forecast is raised to 5.0% in FY2026 due to shipping delays caused by mechanical and maintenance issues. The inflation outlook for Papua New Guinea remains unchanged at 3.8% for 2025 and 4.3% for 2026.

Publication and Links

Asian Development Outlook (ADO) September 2025: Growth Slows as a New Global Trade Environment Takes Shape

The Asian Development Outlook analyzes economic and development issues in developing Asia and the Pacific. This includes forecasting the inflation and gross domestic product growth rates of economies throughout the region, including the People’s Republic of China and India.