World Bank says South Asia growth to slow to 6.3pc in 2026 amid ME conflict

NEW DELHI: South Asia’s growth is expected to slow to 6.3 percent in 2026 from 7.0 percent in 2025 as the conflict in the Middle-East and disruptions in global energy markets weigh on the import-dependent region, the World Bank said on Wednesday.

In its latest South Asia Economic Update, the bank said growth should recover to 6.9 percent in 2027, while the region would remain the fastest growing among emerging market and developing economies.

The World Bank said the outlook was highly uncertain because South Asia depends heavily on imported energy and is vulnerable to spillovers from the Middle East conflict. It warned that further energy market dislocation could raise inflation, force monetary tightening and weaken remittance flows.

World Bank President Ajay Banga said on Tuesday the war in the Middle East would lead to slower global growth and higher inflation, regardless of how quickly it ended.

The World Bank said India is expected to remain the main driver of regional growth, with output projected at 7.6 percent in fiscal 2025/26 before easing to 6.6 percent in 2026/27. It had forecast growth for the current financial year at 6.3 percent in October 2025.

“Despite a challenging global environment, South Asia’s growth prospects remain strong,” said Johannes Zutt, World Bank Vice President for South Asia, adding countries needed reforms to sustain growth, create jobs and raise resilience to shocks.

The lender said Bangladesh is forecast to grow 3.9 percent in fiscal 2025/26 as it recovers from political unrest, while Bhutan is seen expanding 7.1 percent on the back of hydropower projects.

Sri Lanka is projected to grow 3.6% in 2026, slowing from 5.0 percent in 2025, as higher energy prices weigh on activity, while the Maldives is expected to slow sharply to 0.7 percent as tourism, fuel costs and financing conditions come under pressure.

Nepal is forecast to grow 2.3 percent in fiscal 2025/26, with a rebound later as the effects of unrest fade.

Pakistan and Afghanistan will be separately covered in the World Bank’s Middle East and North Africa update.