ADB maintains China growth outlook, trims inflation forecast on weak demand

An inflation forecast below 1% for China in both 2026 and 2027 highlights the lack of price pressures in the world's second-largest economy, keeping deflation risks on the table and allowing Beijing room for additional policy support. This stands in contrast to most of the rest of developing Asia, where energy costs from the Middle East conflict keep inflation high and restrict central banks' ability to ease. For commodity markets, an unchanged China growth outlook provides little indication of a demand-driven boost, leaving energy prices primarily influenced by supply disruptions. The ADB's view of diverging policy paths suggests a wider dispersion in Asian interest rates and currencies.

The ADB projects steady growth for China with virtually no inflation, even as energy shocks maintain high prices in other parts of developing Asia.

Key takeaways:

• China's growth forecast was left at 4.6% for 2026 and 4.5% for 2027 by the ADB, after 5.0% growth in 2025.
• The 2026 China inflation forecast was reduced to 0.9% from 1.2% in July, while 2027 was unchanged at 0.9%, following flat prices in 2025.
• The growth forecast for developing Asia and the Pacific in 2026 was raised to 5.0% from 4.9%, with 2027 steady at 5.1%, supported by investment, stimulus, and AI-related exports.
• Regional inflation for 2026 was cut to 4.2% from 4.3%, partly due to weaker Chinese demand, while the 2027 estimate increased to 3.5% from 3.4% based on an anticipated stronger El Niño.
• India's 2026 growth projection increased to 7.0% from 6.6%, and Southeast Asia's rose to 4.7% from 4.6%. Forecasts for the Caucasus and Central and West Asia and the Pacific were lowered.
• The ADB noted that risks are still skewed to the downside, pointing to high energy prices from the Middle East conflict and the Russia-Ukraine war, along with a strengthening El Niño.

On Wednesday, the Asian Development Bank left its China growth forecasts unchanged while reducing its inflation outlook for the country, citing weaker demand, and modestly increased the growth forecast for all of developing Asia.

In its latest Asian Development Outlook, the Manila-based lender maintained China's growth forecast at 4.6% for 2026 and 4.5% for 2027, unchanged from July. China expanded 5.0% in 2025. For the broader East Asia sub-region, where China dominates, growth forecasts have increased since April, when the ADB had predicted 4.4% for 2026 and 4.1% for 2027.

The more significant adjustment was on prices. The ADB trimmed its 2026 China inflation forecast to 0.9% from 1.2% in July, and left 2027 unchanged at 0.9%, following flat consumer prices in 2025. According to the lender, weaker demand in China and government actions in South Asia to protect consumers from higher fuel costs should help limit inflation in the region this year.

For developing Asia and the Pacific overall, the ADB raised its 2026 growth forecast slightly to 5.0% from 4.9%, and held 2027 at 5.1%. The lender cited resilient investment, government stimulus, and robust demand for AI-related exports as offsetting the negative effects of high energy prices and geopolitical tensions. Stronger outlooks in South and Southeast Asia drove the upward revision. India's 2026 forecast increased to 7.0% from 6.6%, and Southeast Asia's went up to 4.7% from 4.6%, with upgrades for Vietnam and Malaysia but a cut for the Philippines. Forecasts were reduced for the Caucasus, Central and West Asia, and the Pacific.

The ADB lowered its regional inflation forecast for 2026 to 4.2% from 4.3%, while increasing its 2027 projection to 3.5% from 3.4%, due to expectations of a greater impact from El Niño.

The ADB stated that risks are still to the downside. High and volatile energy prices, stemming from the prolonged Middle East conflict and renewed escalation of the war in Ukraine, continue to pressure the outlook, and a strengthening El Niño could damage growth and increase price pressures.

According to the ADB, central banks in the region have largely kept interest rates unchanged this year as they balance inflation risks with growth support needs, but the lender expects policy paths to diverge based on local conditions.

For China, the main tension continues to be the gap between stable growth and near-zero inflation. With price pressures so mild, the outlook centers on whether Beijing will increase support for domestic demand, while energy costs keep inflation a worry for many neighbouring countries.