World Bank projects South Asia growth at 6.6pc and slowing to 5.8pc in 2026

• Trade openness, technology adoption key to growth and jobs

WASHINGTON: Growth in South Asia is projected to be robust at 6.6% this year but a significant slowdown looms on the horizon, the World Bank says in its twice‑a‑year regional outlook.

South Asia includes Nepal, India, Bangladesh, Bhutan, Maldives and Sri Lanka.

Released on Tuesday, the latest South Asia Development Update, Jobs, AI, and Trade, projects growth in the region to slow to 5.8% in 2026, a downward revision of 0.6 percentage points from the April forecast. Downside risks include spillovers from the global economic slowdown and uncertainty around trade policy, socio‑political unrest in the region, and labour‑market disruptions posed by emerging technology such as artificial intelligence (AI).

“South Asia has enormous economic potential and is still the fastest growing region in the world. But countries need to proactively address risks to growth,” said Johannes Zutt, World Bank Vice President for South Asia. “Countries can boost productivity, spur private investment, and create jobs for the region’s rapidly expanding workforce by maximising the benefits of AI and lowering trade barriers, especially for intermediate goods.”

South Asian countries rank among the least open to international trade and finance. The region’s high tariffs protect sectors where employment opportunities are shrinking. High tariffs also severely impede the manufacturing sector, which faces tariffs on intermediate goods — components and raw materials needed for production — that are more than double those in other emerging market and developing economies.

By contrast, sectors with lower tariffs, such as services, have accounted for three‑quarters of employment growth during the past decade. Carefully sequenced tariff reductions, especially in the context of broader free‑trade agreements, could help boost private investment, increase competitiveness and generate significant employment opportunities.

The report also recommends harnessing the potential of AI to boost productivity and incomes. The rapid development of AI is transforming the global economy and reshaping labour markets. South Asia’s workforce has limited exposure to AI adoption due to the predominance of low‑skill, agricultural and manual jobs, but moderately educated young workers, especially in sectors such as business services and information technology, are vulnerable. Since the release of ChatGPT, job listings have fallen by around 20% in jobs most exposed to, and most replaceable by, AI relative to other occupations.

AI could also bring substantial productivity gains, especially in sectors where it complements human labour. Job‑listings data in the region indicate rapidly growing demand for AI skills, with such roles commanding a wage premium of nearly 30% relative to other professional posts.

The report’s recommendations include steps to accelerate job creation by streamlining size‑dependent regulations that discourage firm growth, improving transport and digital connectivity, making housing search options more transparent, enhancing upskilling and job matching, and providing safety nets for affected workers.

“Increasing trade openness and growing adoption of AI could be transformative for South Asia,” said Franziska Ohnsorge, World Bank Chief Economist for South Asia. “Policy measures to facilitate the reallocation of workers across firms, activities and locations can help channel resources to productive sectors and are critical for boosting investment and job creation in the region.”