South Asia growth holds firm, but energy, weather risks loom

In South Asia, economic growth is projected to remain steady at 6.9% in 2026, according to the World Bank. This forecast is an increase of 60 basis points compared to the previous estimate and represents a 10 basis point rise from the 2025 projection. The region's resilience in the face of energy shocks and severe weather events is attributed to government measures shielding consumers, robust remittances, and strong domestic demand.

India, the largest economy in South Asia, is expected to grow 7.1% in 2026/27, up from the earlier forecast of 6.6%. However, high oil prices, persistent weather shocks, and a global market correction could pose risks to the region's outlook. Despite elevated inflation, which is expected to persist into 2027, growth has managed to stay resilient.

A strong El Niño could further exacerbate risks, particularly for India, where agriculture is crucial for rural demand and inflation. The World Bank recommends the adoption of AI to maintain growth momentum in the medium term, noting that AI adoption in South Asia is catching up to that of advanced economies. In India, 23% of firms report using AI, compared to 43% of US firms, indicating a promising avenue for creating more, better jobs.