South Asia Growth Projected to Slow Despite Current Robust Rate, World Bank Reports
Growth in South Asia is expected to remain strong at 6.6 percent this year, but a significant slowdown to 5.8 percent is forecast for 2026, according to a new report released yesterday by the World Bank.
The twice-yearly South Asia Development Update, titled “Jobs, AI, and Trade,” highlights the need for reforms to promote trade openness and technology adoption to sustain growth and create jobs across the region. The downward revision of 0.6 percentage points from the April forecast reflects concerns over global economic headwinds, trade policy uncertainty, socio-political instability, and potential labor market disruptions from artificial intelligence (AI).
“South Asia has enormous economic potential and is still the fastest growing region in the world,” said Johannes Zutt, World Bank Vice President for South Asia. “But countries need to proactively address risks to growth… Countries can boost productivity, spur private investment, and create jobs for the region’s rapidly expanding workforce by maximizing the benefits of AI and lowering trade barriers, especially for intermediate goods.” The report notes that South Asian nations currently have some of the highest tariffs in the world, hindering manufacturing and protecting sectors with declining employment opportunities – a situation that impacts the region’s ability to compete in global markets.
The report also emphasizes the potential of AI to drive productivity gains, but warns that many South Asian workers, particularly those in low-skill jobs, are vulnerable to displacement. However, demand for AI skills is already growing rapidly, with related jobs commanding a wage premium of nearly 30 percent. The World Bank recommends policies to facilitate worker reallocation and provide safety nets for those affected by technological changes, as well as streamlining regulations to encourage business growth.
Officials stated that increasing trade openness and AI adoption are critical steps for South Asia to maintain economic momentum and ensure inclusive growth in the coming years.
