Key Points
- The World Bank has cut its 2026 economic growth forecast for South Asia to 5.8%. This would be the region’s slowest growth in 25 years.
- A major reason for the downgrade is the impact of U.S. tariffs on India’s economy.
- The World Bank also warned of risks from AI-driven labor disruptions and social unrest.
- The report did have some bright spots, with stronger growth expected in Bangladesh and Sri Lanka.
The World Bank has reduced its economic growth forecast for South Asia, warning that the region is facing mounting risks from a volatile global economy, particularly the punishing U.S. tariffs on India. The lender now projects that South Asia’s growth will slow to 5.8% in 2026, the region’s lowest growth rate in 25 years, excluding periods of global recession.
While South Asia is still the fastest-growing region in the world, the World Bank says countries need to “proactively address risks to growth.” The biggest of these risks is the ongoing trade war. President Trump’s 50% tariffs on Indian exports are a significant blow to the region’s largest economy, affecting key industries such as textiles and jewelry.
As a result, the World Bank has lowered its growth projection for India for the upcoming fiscal year. While it still expects solid growth, the tariff impact is a significant headwind.
The report also highlights other risks facing the region, including the potential for labor disruptions due to artificial intelligence and social unrest in countries such as Nepal. The World Bank is concerned that these shocks could combine with high debt levels to create a serious financial squeeze.
It’s not all bad news. The report notes that growth in Bangladesh is expected to pick up, and Sri Lanka’s economy is getting a boost from a stronger-than-expected recovery in tourism.
