The World Bank Group published its South Asia Economic Update, projecting regional growth to slow to 6.3% in 2026 from 7% in 2025 due to disruptions in global energy markets, before recovering to 6.9% in 2027. The update also argues that reforms are needed to sustain growth and create enough jobs for the region’s expanding workforce. India’s performance is presented as the main driver of the outlook, supported by robust domestic demand alongside tariff cuts and recent trade agreements, including a free trade agreement with the European Union. The report flags heightened uncertainty given South Asia’s reliance on imported energy, with potential spillovers from the conflict in the Middle East that could raise inflation, prompt monetary policy tightening, and dampen remittances, alongside risks from global financial turbulence, climate shocks such as Cyclone Ditwah in Sri Lanka, and the impact of AI adoption on service exports. Its in-depth section on industrial policy finds South Asia uses such measures at roughly twice the rate of other emerging economies, focuses about half of them on manufacturing, and has seen mixed results, with import-restricting policies linked to declines in imports while export-promoting measures were not linked to significant export gains; it recommends carefully designed measures in areas such as urban development, tourism, and digital services, alongside broader improvements in the business environment, regulatory predictability, and state capacity.
World Bank 2026-04-08
World Bank forecasts South Asia growth to slow to 6.3% in 2026 and rebound to 6.9% in 2027
The World Bank Group’s South Asia Economic Update projects regional growth to slow to 6.3% in 2026 from 7% in 2025 due to global energy market disruptions, before recovering to 6.9% in 2027, with India’s domestic demand and trade agreements as the main driver. The report highlights risks from imported energy dependence, global financial turbulence, climate shocks, and AI’s impact on service exports. It finds South Asia uses industrial policy at roughly twice the rate of other emerging economies, with mixed results, and recommends more targeted measures in urban development, tourism, and digital services, backed by a better business environment and stronger state capacity.