NextFin news, On Tuesday, October 7, 2025, the World Bank announced a significant downgrade in its economic growth forecast for South Asia, projecting a growth rate of 5.8% for 2026, a decline from the 6.6% growth expected in 2025. This revision reflects the impact of punitive US tariffs imposed on Indian exports, which is the largest economy in the region.
The Washington-based lender highlighted that the 5.8% forecast for 2026 represents the slowest growth in South Asia in 25 years, excluding periods of global recession or economic downturns. The tariffs, introduced by US President Donald Trump, include a 50% levy on Indian goods, targeting over three-quarters of exports to the US, India’s largest market. These tariffs particularly affect labor-intensive sectors such as textiles and jewelry.
Johannes Zutt, World Bank Vice President for South Asia, stated, "South Asia has enormous economic potential and is still the fastest growing region in the world. But countries need to proactively address risks to growth." The report also warned of mounting risks from a volatile global economy, disruptions from artificial intelligence in labor markets, and social unrest, which could exacerbate financial pressures amid elevated debt levels and weaknesses in the financial sector.
India’s gross domestic product (GDP) is forecasted to grow by 6.5% in the fiscal year ending March 2026, slightly below the Reserve Bank of India’s projection of 6.8%. The forecast for the following fiscal year has been trimmed by 0.2 percentage points to 6.3%. The tariffs are a response to India’s trade barriers and its purchases of Russian oil, according to US officials.
The World Bank’s report also highlighted economic challenges in neighboring countries. Nepal is expected to see growth decline to 2.1% in 2025 due to recent unrest and political uncertainty. Bangladesh is projected to experience a stronger growth pickup of 6.3% in the 2026–27 fiscal year amid rising investment and easing political tensions. The Maldives faces substantial debt repayment obligations with low foreign exchange reserves, while Sri Lanka’s economy benefits from stronger-than-expected tourism and remittances.
The World Bank’s findings underscore the interconnectedness of trade policies and regional economic health, emphasizing the need for South Asian countries to manage external shocks and internal vulnerabilities to sustain growth.
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