World Bank Raises South Asia Growth Forecast to 6.9%

The World Bank has raised its 2026 economic growth forecast for South Asia, citing resilient consumer demand despite elevated energy prices, while warning that oil costs, extreme weather and a global market correction remain major risks.

South Asia is now expected to expand 6.9% in 2026, 60 basis points above the World Bank’s previous forecast and 10 basis points higher than its estimate a year earlier. The upgrade reflects stronger-than-expected consumption despite disruptions caused by the US-Israeli war on Iran.

World Bank Chief Asia Economist Franziska Ohnsorge said government measures protecting consumers, strong remittance inflows and resilient domestic demand have helped cushion the impact of higher energy prices across the import-dependent region.

India, South Asia’s largest economy, is forecast to grow 7.1% in fiscal 2026/27, compared with the World Bank’s June projection of 6.6%. However, that would represent a significant slowdown from the 8.6% growth recorded in 2025/26.

Inflation remains a key concern. Ohnsorge said price pressures are expected to stay elevated into 2027, although their full impact on economic activity could take time to emerge. In emerging markets, she said, the typical lag between inflationary shocks and their effects on growth is around 18 months.

India’s central bank expects inflation to average 5% during the current financial year. A majority of economists surveyed by Reuters expect policymakers to raise interest rates by 25 basis points on October 7, marking the first increase since 2023, with another hike potentially following in December.

Weather also presents a downside risk. A strong El Niño could hurt Indian agriculture, rural consumption and food prices. India last experienced El Niño conditions in 2023, when monsoon rainfall reached 95% of the long-period average.

For longer-term growth, the World Bank encouraged South Asian economies to accelerate artificial intelligence adoption. About 23% of Indian firms currently report using AI, compared with 43% of US companies, highlighting both the region’s technology gap and its potential for further expansion.