South Asia growth holds firm, but energy shock, weather pose risks, says World Bank
Agencies New Delhi The World Bank raised its growth forecast for South Asia, citing resilient consumer demand despite an energy shock, but warned that persistently high oil prices,...
The World Bank has upgraded its growth forecast for South Asia, citing resilient consumer demand despite an ongoing energy shock, but cautioned that persistently high oil prices, severe weather conditions and a potential global market correction could jeopardize the region's outlook. The bank now anticipates the region to expand by 6.9 percent in 2026, marking a 60 basis points increase from its previous forecast and 10 basis points above its estimate from the previous year, as higher energy prices have not dampened momentum in consumption growth.
This resilience is attributed to government measures shielding consumers, strong remittances and robust domestic demand, according to Franziska Ohnsorge, the World Bank's chief Asia economist.
South Asia, heavily reliant on energy imports, has outperformed expectations in the face of supply disruptions from the US-Israeli conflict on Iran. The bank projects India, the region's largest economy, to grow by 7.1 percent in 2026/27, up from the 6.6 percent growth it forecasted in June but considerably lower than the 8.6 percent growth recorded in 2025/26.
Despite rising inflation eroding consumer purchasing power, growth has remained robust, with inflation expected to stay elevated through 2027. However, it may take time for higher inflation to impact economic growth, as it typically takes around 18 months for such shocks to manifest in emerging markets, according to Ohnsorge.
The World Bank has not specified an aggregate South Asia inflation forecast for 2026 but provides country-level projections. India's central bank forecasts inflation to average 5 percent in the current fiscal year and is likely to raise rates by 25 basis points on October 7, with more hikes possible in December, as suggested by a majority of Reuters-polling economists.
The bank advocates for the adoption of artificial intelligence to sustain growth momentum in the medium term, noting that while AI adoption in South Asia lags behind that of advanced economies, it is gaining momentum fast. In India, which contributes significantly to regional economic expansion, only 23 percent of firms report using AI, compared to 43 percent in the US.
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