South Asia’s economic expansion is projected to moderate to 6.3% in 2026 from 7.0% in 2025, as conflict in the Middle East and volatility in global energy markets weigh on the region’s import-dependent economies, the World Bank said in its latest South Asia Economic Update released on Wednesday.
The lender expects growth to rebound to 6.9% in 2027, maintaining South Asia’s position as the fastest-growing region among emerging market and developing economies despite mounting external risks.
The bank cautioned that the outlook remains highly uncertain due to the region’s heavy reliance on imported energy and vulnerability to spillover effects from instability in the Middle East. It warned that further disruptions in energy markets could accelerate inflation, trigger tighter monetary policy and weaken remittance flows across the region.
Ajay Banga said on Tuesday that the war in the Middle East would likely result in slower global growth and higher inflation, regardless of how quickly the conflict ends. Research by the International Monetary Fund has shown that wars typically impose deep and prolonged economic costs on economies.
Within the region, India is expected to remain the principal driver of growth, with output projected to expand by 7.6% in fiscal year 2025/26 before easing to 6.6% in 2026/27. The bank had earlier forecast growth of 6.3% for the current financial year in its October 2025 outlook.
Among other South Asian economies, Bangladesh is forecast to grow 3.9% in fiscal 2025/26 as it recovers from political unrest, while Bhutan is projected to expand by 7.1% supported by hydropower projects.
Sri Lanka’s economy is expected to grow 3.6% in 2026, slowing from 5.0% in 2025 as higher energy prices weigh on activity, while the Maldives is projected to record a sharp slowdown to 0.7% amid pressures from tourism trends, fuel costs and tightening financing conditions.
Nepal is forecast to grow 2.3% in fiscal 2025/26, with a recovery anticipated later as the effects of unrest diminish.
The report noted that South Asian countries are implementing industrial policy measures at roughly twice the rate of other emerging economies, but outcomes have been mixed. Import-restricting policies have been associated with significant declines in imports, while export-promoting measures have not produced meaningful gains in export performance.
Pakistan and Afghanistan will be covered separately in the World Bank’s Middle East and North Africa regional update.
The post South Asia growth to slow to 6.3% in 2026 as energy shocks and war risks cloud outlook appeared first on Profit by Pakistan Today.