World Bank forecasts South Asia growth to slow to 6.3% in 2026 and calls for reforms and better-targeted industrial policy to create jobs

The World Bank published its twice-yearly 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 report argues that policy reforms are needed to sustain growth and accelerate job creation for a fast-expanding workforce. Given the region’s reliance on imported energy, the outlook is described as exceptionally uncertain and exposed to spillovers from the conflict in the Middle East, with further dislocation in global energy markets potentially raising inflation, tightening monetary policy, and dampening remittances. Additional downside risks include global financial turbulence, climate shocks such as Cyclone Ditwah in Sri Lanka, and potential impacts of artificial intelligence adoption on service exports. Growth remains driven primarily by India, supported by robust domestic demand, tariff cuts and recent trade agreements, including a free trade agreement with the European Union. The report’s industrial policy analysis finds South Asia uses industrial policy at roughly twice the rate of other emerging economies and directs about half of such measures to manufacturing, while services have driven most new jobs outside agriculture but are rarely targeted; it also notes mixed results, with import-restricting policies associated with lower imports but export-promoting measures not associated with significant export increases. The World Bank also released country development updates for Bangladesh and Nepal.