The article was first published on OMFIF on April 21st, 2026.

Yasuto Watanabe is Director and CEO of ASEAN+3 Macroeconomic Research Office. He is former Senior Deputy Vice Minister at Japan Ministry of Finance.

Asean+3 must prioritise flexibility and regional co-operation

The conflict in the Middle East has become more than a geopolitical flashpoint. For Asean+3 – comprising member countries of the Association of Southeast Asian Nations plus China, Japan and Korea – it is now a direct economic shock. With the region importing more than a third of its oil and gas from the Middle East, higher energy prices and financial volatility are feeding quickly into growth, inflation and market sentiment. The scale of the impact will depend on how long the conflict persists, but it can no longer be treated as a distant risk.

Entering from a position of strength

Asean+3 is, however, better prepared than in past episodes of stress. The region’s experience is instructive: successive crises have strengthened policy frameworks, enhanced institutional credibility and deepened resilience. From the Asian financial crisis in 1997 to the 2008 financial crisis, and now amid trade fragmentation and technological disruption, policy-makers have adapted by becoming more pragmatic, disciplined and coordinated.

The latest regional outlook reinforces this point. Asean+3 entered 2026 from a position of relative strength, with growth of 4.3% in 2025 and inflation at 0.9%, giving central banks some room to absorb a supply shock without immediately tightening policy. It also allows fiscal authorities to support activity while maintaining a focus on medium-term sustainability. Even so, the Middle East conflict and disruptions to global energy supply have materially increased downside risks, with regional growth projected at 4.0% in both 2026 and 2027.

Resilience built through crisis

This resilience has not emerged by accident. It is the result of deliberate policy evolution over time. After the Asian financial crisis, the region strengthened macroeconomic frameworks, improved exchange rate management and placed greater emphasis on fiscal discipline. Macroeconomic credibility became a central policy objective – and remains one of the region’s key strengths.

A second layer of reform followed the 2008 financial crisis. Although Asean+3 was not at the epicentre, the episode highlighted the region’s exposure to global financial cycles. Policy-makers responded by strengthening macroprudential frameworks, improving supervision and building more robust banking systems. Today, banks are generally well capitalised and liquid, though vulnerabilities in property markets, corporate leverage and household debt still warrant close attention.

A third phase of adjustment is now under way. It is being driven by geopolitical fragmentation, trade tensions and rapid technological change. The current Middle East conflict has intensified these pressures, while supply chain realignment and tariff uncertainty are forcing economies to rethink growth models. For Asean+3, a region deeply embedded in global production networks, the challenge is to remain open, competitive and resilient at the same time.

Policy flexibility and co-operation

Flexibility has therefore become the region’s most valuable policy asset. Singapore continues to draw on its institutional credibility as a global financial and logistics hub. Malaysia is pushing industrial upgrading and investment facilitation. Vietnam remains central to manufacturing supply chains. Across the region, governments are investing in digitalisation, advanced manufacturing, human capital and infrastructure. The goal is not narrow sectorial targeting, but broader adaptability.

The policy implications are clear. In the current environment, rigid policy templates are less effective than pragmatic management. Monetary policy must distinguish between temporary supply shocks and broader inflationary pressures. Fiscal policy must remain flexible and responsive while rebuilding space without undermining growth. Financial supervision must remain vigilant even when headline indicators appear stable. Resilience is not a fixed condition; it is a continuous process of adjustment.

Regional co-operation is increasingly central to that process. Initiatives such as cross-border digital payments, financial infrastructure integration and deeper policy dialogue are helping the region absorb shocks more effectively. In a more uncertain world, such co-operation is not optional. It is a core pillar of stability.

The broader lesson is that shocks can be catalysts. They expose vulnerabilities but also drive reform. Asean+3 has moved from fragility towards a more robust and pragmatic model of policy management. That progress should not invite complacency. It should reinforce the need for vigilance, flexibility and co-operation.

As the Asean+3 Macroeconomic Research Office marks its 10th anniversary, its role in identifying risks early, supporting sound policy and strengthening regional co-operation becomes even more important. The region is entering a more turbulent phase, but it is better equipped than in the past to navigate it. The priority now is to preserve credibility, remain adaptable and keep co-operation at the centre of the response.