In its latest regional update, the World Bank projects that South Asia’s economic growth will slow to 5.8% in 2026, down from a forecast of 6.6% for 2025. The downward revision reflects mounting pressures from higher U.S. tariffs on Indian exports, supply chain disruptions, and a weakening global economic environment.
Although the current year still benefits from strong government spending and investment, the bank warns that these buffers will erode over time. Export sectors, particularly in India, face significant stress, with tariff hikes expected to hurt labor-intensive industries such as textiles, gems & jewelry, and seafood.
Despite these headwinds, India is expected to maintain relatively robust growth. However, further tariff retaliation or slower global demand could constrain the outlook for 2026. The region at large must contend with structural vulnerabilities, including limited trade openness, inflationary pressures, and potential labor market disruptions fueled by emerging technologies like artificial intelligence (AI).
To counter these challenges, the World Bank recommends policy measures including greater trade liberalization, investment in digital infrastructure, upskilling of the workforce, and reforms that facilitate the reallocation of labor across sectors. These steps could help South Asian economies stabilize and even unlock new growth avenues despite external shocks.
