The World Bank raised its 2026 growth forecast for South Asia, saying resilient consumption has absorbed the shock of higher energy prices. The lender still flagged persistently high oil prices, a severe weather shock, and a global market correction as risks that could threaten the outlook.
The World Bank raised its growth forecast for South Asia, citing resilient consumer demand despite an energy shock, but it warned that persistently high oil prices, a severe weather shock, and a global market correction could threaten the region's outlook.
Growth forecast rises to 6.9%
South Asia is now expected to grow 6.9% in 2026, 60 basis points higher than the Bank's previous forecast and 10 basis points above its estimate a year ago. World Bank Chief Asia Economist Franziska Ohnsorge said government measures to shield consumers, strong remittances, and resilient domestic demand have helped cushion the impact. The region, heavily dependent on energy imports, has so far proved more resilient than expected to supply disruptions from the US-Israeli war on Iran.
India leads growth as inflation stays high
India, the region's largest economy, is projected to grow 7.1% in 2026/27, up from the 6.6% forecast in June but well below the 8.6% recorded in 2025/26. Growth has held up even as higher inflation has eroded consumer purchasing power.
Ohnsorge said in an interview with Reuters: "Inflation is expected to remain elevated into 2027." She added that in emerging markets, the normal lag between such shocks and their effect on economic activity is around 18 months.
India's central bank expects inflation to average 5% this financial year. It is also expected to raise rates by 25 basis points on October 7, with another increase likely in December, according to economists polled by Reuters. The move would mark India's first rate hike since 2023.
Weather and AI adoption round out the risk map
A strong El Niño could pose another risk, particularly for India, where agriculture is key for rural demand and inflation. India last experienced El Niño conditions in 2023, when monsoon rainfall was 95% of the long-period average.
The World Bank also urged countries to adopt AI to sustain growth over the medium term. In India, 23% of firms report using AI. That compares with 43% of firms in the US.
Source: Economy News
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