AMRO holds Asia’s 2026 growth forecast steady at 4%, but said it would have been higher if not for the Iran war

Asia had a strong 2025, despite the doom and gloom surrounding Trump’s “Liberation Day” tariffs. The ASEAN+3 region—which consists of Southeast Asia, China, Japan, and South Korea—defied protectionist headwinds to grow 4.3% last year, beating initial projections from the ASEAN+3 Macroeconomic Research Office (AMRO) released right after the tariff shock.

Now the Iran war poses a new threat to Asia. The closed Strait of Hormuz has disrupted global supply chains and choked energy supplies, particularly for Asia, which buys more than 80% of the oil and gas that passes through the narrow waterway.

“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,” Dong He, AMRO’s chief economist, said during an April 6 press conference in Singapore.

AMRO projected regional growth of 4% for both 2026 and 2027, unchanged from the group’s January forecasts. Yet holding the forecast steady is actually an indication of AMRO’s unease. Allen Ng, another economist at AMRO, noted that Asia was showing surprising strength from AI-driven electronics exports and increased foreign direct investment.

“In Q1 2026, the actual growth in many of our economies was stronger than expected,” Ng said. “Without the Middle East conflict, our forecast almost certainly would’ve been higher than 4%.”

ASEAN as a central driver of GDP growth

AMRO predicts that ASEAN’s economy will grow 4.6% in 2026 and 4.8% in 2027, making it the key driver of Asia’s growth in the near future. (In contrast, the “plus-three” economies of China, Japan and South Korea will grow 3.8% over the same time period).

Ng said Southeast Asia’s growth was due to “densification,” rather than displacement. Even as nations like Japan and South Korea continue to provide capital goods and high-precision components, Southeast Asian nations have deepened their role in global supply chains leading to “more complex and complementary” trade within the ASEAN+3 region.

More than 90% of China-ASEAN trade is in industrial intermediates rather than finished goods, and intra-regional FDI flows now represent roughly half of the FDI stock within the ASEAN+3 region, according to AMRO.

Vietnam, in particular, stands out. Its economy grew 8% in 2025, as companies looked to the country as an alternative manufacturing hub to China. AMRO predicts the country will grow 7.4% in 2026 and 7.1% in 2027.

“Vietnam handled the tariff shock quite well last year,” He said.

Cambodia was also one of the region’s fastest-growing economies last year, with a rate of 5.2%. Over the past decade, the country’s economy has diversified beyond agriculture into the garment and manufacturing sectors. 

AMRO predicts that Cambodia will continue to grow steadily at a rate of 4.9% in 2026 and 5.2% in 2027. But He warned that the nation, a net energy importer, needs to diversify its energy mix and invest in infrastructure to hedge against geopolitical disruptions like the Iran war.

Overall, AMRO’s economists argued that the region’s economies can withstand today’s energy and economic shocks.

“Even if oil prices surge past $100 for the whole year, we’re not predicting a stagflation scenario,” He said. “The region would still be able to grow.”

This story was originally featured on Fortune.com