Key facts
- World Bank raised South Asia growth forecast to 6.9% for 2026.
The World Bank has raised its growth forecast for South Asia to 6.9% for 2026, citing resilient consumer demand and government measures that have cushioned the impact of high energy prices. However, World Bank Chief Asia Economist Franziska Ohnsorge warned that persistent high oil prices, a severe weather shock, and a global market correction pose significant risks to the region's economic outlook.
The World Bank's revised growth forecast and identified risks highlight the delicate balance South Asia's economies face, with potential impacts on inflation, consumer spending, and agricultural output, all of which could influence regional and global markets.
The World Bank has increased its growth forecast for South Asia to 6.9% for 2026, an upward revision of 60 basis points from its previous estimate and 10 basis points higher than a year ago. This improved outlook is attributed to resilient consumer demand, strong remittances, and government measures that have shielded consumers from the impact of higher energy prices. World Bank Chief Asia Economist Franziska Ohnsorge stated in an interview with Reuters that the region's momentum in consumption growth has not been interrupted by elevated energy prices.
Despite being heavily reliant on energy imports, the region has demonstrated greater resilience than anticipated to supply disruptions stemming from the conflict between the US and Iran. India, the largest economy in South Asia, is projected to grow by 7.1% in 2026/27, an increase from the 6.6% predicted in June, though this is lower than the 8.6% recorded in 2025/26. Ohnsorge noted the striking decoupling of higher inflation from consumer purchasing power, suggesting that the lag between such shocks and their effect on economic activity in emerging markets is typically around 18 months, with inflation expected to remain elevated into 2027.
Potential risks to this growth trajectory include a strong El Niño event, which could particularly impact India's agriculture sector, a crucial component for rural demand and inflation. The World Bank also recommended the adoption of artificial intelligence (AI) to sustain medium-term growth momentum. Currently, AI adoption in South Asia lags behind advanced economies, with only 23% of Indian firms reporting AI usage compared to 43% in the United States.
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