A China inflation forecast below 1% for both this year and next underlines how little price pressure the world’s second-largest economy is generating, keeping deflation risk in view and leaving room for further policy support from Beijing. That contrasts with much of the rest of the region, where energy costs tied to the Middle East conflict keep inflation elevated and limit central banks’ scope to ease. For commodity markets, an unchanged China growth path offers little sign of a demand-led lift, leaving energy prices driven mainly by supply disruptions. The ADB’s expectation of diverging policy paths points to wider dispersion in Asian rates and currencies.
The ADB sees China growing steadily but generating almost no inflation, even as energy shocks keep prices elevated elsewhere in developing Asia.
Summary:
- The ADB held its China growth forecasts at 4.6% for 2026 and 4.5% for 2027, following 5.0% growth in 2025
- It cut its 2026 China inflation forecast to 0.9% from 1.2% in July and kept 2027 at 0.9%, after flat prices in 2025
- Developing Asia and the Pacific’s 2026 growth forecast rose to 5.0% from 4.9%, with 2027 unchanged at 5.1%, helped by investment, stimulus and AI-driven exports
- Regional inflation for 2026 was trimmed to 4.2% from 4.3%, partly on softer Chinese demand, while the 2027 forecast rose to 3.5% from 3.4% on a stronger expected El Niño
- India’s 2026 growth forecast was raised to 7.0% from 6.6%, and Southeast Asia’s to 4.7% from 4.6%, while forecasts for the Caucasus and Central and West Asia and the Pacific were cut
- The ADB said risks remain tilted to the downside, citing high energy prices from the Middle East conflict and Russia’s war in Ukraine, and an intensifying El Niño
The Asian Development Bank kept its growth forecasts for China unchanged on Wednesday but lowered its outlook for Chinese inflation, pointing to softer demand in the world’s second-largest economy, as it slightly raised its growth projection for developing Asia as a whole.
In its latest Asian Development Outlook, the Manila-based lender held China’s growth forecast at 4.6% for 2026 and 4.5% for 2027, the same as in July. China grew 5.0% in 2025. The forecasts for the broader East Asia sub-region, in which China is by far the largest economy, have risen since April, when the ADB projected 4.4% growth for this year and 4.1% for next.
The bigger change came on prices. The ADB cut its 2026 inflation forecast for China to 0.9% from 1.2% in July and kept its 2027 forecast at 0.9%, after consumer prices were flat in 2025. The lender said softer demand in China, together with government measures in South Asia to shield consumers from higher fuel costs, should help contain inflation across the region this year.
Across developing Asia and the Pacific, the ADB nudged its 2026 growth forecast up to 5.0% from 4.9%, and kept 2027 at 5.1%. It said resilient investment, government stimulus and strong demand for AI-related exports were offsetting the drag from high energy prices and geopolitical tensions. Stronger prospects in South and Southeast Asia drove the upgrade. India’s 2026 forecast was raised to 7.0% from 6.6%, while Southeast Asia’s rose to 4.7% from 4.6%, led by upgrades for Vietnam and Malaysia, although the Philippines was cut. Forecasts were lowered for the Caucasus and Central and West Asia and for the Pacific.
The ADB trimmed its regional 2026 inflation forecast to 4.2% from 4.3%, but raised its 2027 projection to 3.5% from 3.4%, citing expectations of a stronger impact from El Niño.
The lender said risks remain tilted to the downside. Elevated and volatile energy prices, driven by the prolonged Middle East conflict and renewed escalation of Russia’s war in Ukraine, continue to weigh on the outlook, and a strengthening El Niño could hurt growth and add to price pressures.
Regional central banks have mostly held interest rates steady this year as they weigh inflation risks against the need to support growth, the ADB said, though it expects their policy paths to diverge depending on domestic conditions.
For China, the gap between steady growth and near-zero inflation remains the central tension. With price pressures this subdued, the outlook leaves the focus on whether Beijing steps up support for domestic demand, even as energy costs keep inflation a concern for many of its neighbours.
This article was written by Eamonn Sheridan at investinglive.com.