The Asia-Pacific region’s economy grew by 3.3 percent in 2025, exceeding previous projections. However, a new report by the APEC Policy Support Unit warns that this economic momentum is now fading. According to the analysis, growth will slow down to 3.1 percent in 2026 and further moderate to 3.0 percent in 2027, affecting more than half of the APEC economies.
The main cause of this weakening outlook is the worsening conflict in the Middle East. This geopolitical tension triggered a massive 52.8 percent surge in oil prices between February and March 2026, pushing costs from USD 68 to USD 103.9 per barrel. Since oil and gas represent 49 percent of APEC’s energy mix, the region remains highly vulnerable to these external shocks.
Furthermore, these disruptions directly threaten regional food security. APEC relies heavily on the Middle East for 27 percent of its nitrogen-based fertilizers. Consequently, alongside rising fuel costs and shipping delays, food prices are climbing sharply across the region, with vegetable oils, cereals, and meat facing the steepest increases.
Deepening Trade Fragmentation and Inflation
Trade fragmentation is also intensifying due to a sharp increase in trade-restrictive measures, including new tariffs. This protectionist trend has severely damaged the regional trade outlook. As a result, growth in merchandise export volumes is projected to drop significantly to a range of 3.3 to 3.7 percent between 2026 and 2028, down from the strong 7.6 percent recorded in 2025.
These overlapping economic disruptions are driving up inflation across the Asia-Pacific. Average inflation in the APEC region is projected to rise from 2.4 percent in 2025 to 2.9 percent in 2026. Despite this increase, the region still performs better than the global forecast, which stands at a much higher 4.4 percent.
Urgent Need for Regional Cooperation
Mounting public debt means that governments now have limited fiscal space to absorb further economic shocks. Therefore, the report urges APEC member economies to strengthen supply chain resilience by using digital platforms and diversifying shipping routes.
Carlos Kuriyama, Director of the APEC Policy Support Unit, emphasized that cooperation on energy security and trade resilience is no longer just beneficial, but absolutely essential. To protect households and businesses, economies must diversify their energy sources and invest heavily in sustainable infrastructure.
Reference
APEC Policy Support Unit. (2026, May 21). APEC sees moderating growth amid rising energy costs and supply chain pressures. APEC Secretariat. https://www.apec.org/press/news-releases/2026/0521_ARTASOM2