Macroeconomic prospects, challenges and policies

Average economic growth in Asian and Pacific developing countries moderated to 4.6% in 2025, down from 4.8% in 2024. Growth is projected to decline further to 4.0% in 2026, assuming a partial de-escalation of the Middle East conflict that began on 28 February 2026. This conflict has already triggered a 45% surge in Brent crude oil prices and increased container freight rates by 3–10%. Additionally, rising trade protectionism remains a significant headwind; as of November 2025, consumers in the United States faced an average effective tariff rate of 16.8%, the highest since 1935. Despite these challenges, the region accounted for approximately 40% of global GDP and 60% of global growth in 2025. While extreme poverty reached a new low, moderate poverty remains a concern, and more than half of the region’s countries experienced an increase in inequality between 2019 and 2022. Employment growth reached 1.7% in 2025, yet manufacturing employment remained 2% below pre-pandemic levels. Policymakers are advised to adopt “quick-win” fiscal policies that support vulnerable groups and focus on strengthening domestic and regional demand sources.

Transition to an environmentally sustainable economy: potential pathways and macroeconomic impacts

The energy sector is responsible for 75% of the region’s greenhouse gas emissions. The share of carbon-based energy in the primary energy mix rose from 78% in 2000 to 83% in 2023, even as zero-carbon sources expanded. Decarbonisation pathways must be gradual and consultative, balancing environmental goals with socioeconomic prosperity. Rapid transitions may cause significant upfront costs and employment shocks, particularly in fossil-fuel industries where job losses tend to be sudden and concentrated. However, the renewable energy sector offers substantial growth potential, with global green jobs projected to reach 30 million by 2030. This would require the creation of 2.7 million jobs annually from 2026 to 2030. Currently, renewable energy is becoming more financially viable, with wind and solar often being the cheapest electricity options even without carbon taxes. Despite this, the region faces constraints such as limited supply of critical minerals and a shortage of skilled labour, with 60% of energy firms reporting vacancies. Public resources provide 68% of current climate action financing, but greater private sector involvement is essential to meet future requirements.

Socioeconomic prosperity amid the transition to an environmentally sustainable economy: policy options

The report proposes a three-step framework for promoting prosperity alongside the energy transition. Step one involves identifying national priorities; for example, reducing fossil fuel dependence is a priority for countries where hydrocarbons account for over 75% of the energy supply. Step two requires assessing the macroeconomic trade-offs of policy packages. Measures like cutting oil subsidies can improve fiscal sustainability but may increase inflation and decrease near-term household consumption. Step three assesses implementation feasibility across four pillars: fiscal space, monetary conditions, institutional capacity, and technological readiness. Recommended instruments include transition finance taxonomies, which use “traffic light” systems to categorise activities, and sovereign green, social, and sustainability (GSS+) bonds. The Asia-Pacific region is a global leader in this field, with sustainable bonds representing 21% of total international bond issuance in 2024. Notable examples include Fiji’s FJ$100 million sovereign green bond and Thailand’s $15 billion sustainability-linked bond issuance.

Socioeconomic prosperity amid the transition to an environmentally sustainable economy: policy implementation

Effective policy implementation requires more than sound economic design; it must account for technical and political realities. Analytical tools such as integrated assessment models (IAMs) and computable general equilibrium (CGE) models help policymakers map long-term pathways and sectoral impacts. For instance, CGE microsimulation in Indonesia shows that revenue recycling can transform regressive carbon taxes into progressive outcomes, potentially reducing regional poverty by up to 4 percentage points. To manage political economy challenges, a “build-align-consolidate” framework is recommended. This includes building legitimacy through central coordination units, aligning reform timing with political cycles, and consolidating momentum by creating new economic beneficiaries in clean-technology sectors. Furthermore, behavioural science can address the “last-mile” challenge of policy uptake. Nudges, such as making renewable energy the default tariff option, have proven highly effective; in Switzerland, 80% of customers remained on a renewable tariff once it became the default. Combining quantitative analysis with political and behavioural insights allows governments to move beyond aspirational planning toward scalable and durable reforms.