World Bank predicts notable shrinking of South Asian economies in 2026

The World Bank forecasts economic growth in South Asia to experience a substantial reduction this year due to the fallout of the Iran war.

The disruptions in the global energy market from the conflict in the Middle East will see growth drop from 7.0% to 6.3%, Caliber.Az reports citing the financial institution's latest report on the region.

Growth is projected to bounce back by 2027 to reach 6.9%, the World Bank estimates in its South Asia Economic Update, with the region remaining the fastest-growing among developing economies.

India will continue to be the main driver of regional growth, with GDP expected to reach 7.6% in the 2025/26 fiscal year before slowing to 6.6% in 2026/27. 

Bangladesh's economy is forecast to grow by 3.9%, while Bhutan's is expected to expand by 7.1%, supported by hydropower projects. 

Sri Lanka is projected to see a slowdown to 3.6%, the Maldives down to 0.7% due to pressure on tourism and rising fuel prices, while Nepal is expected to grow by 2.3%. 

The World Bank highlighted the region’s strong reliance on imported energy and its vulnerability to global shocks. It also noted that active industrial policies in South Asia are producing mixed results: measures to restrict imports have reduced inbound trade, while export promotion efforts have yet to generate significant gains.

In the update, WB President Ajay Banga said the conflict in the Middle East would slow global growth and accelerate inflation regardless of how long it lasts.

By Nazrin Sadigova