World Bank cuts South Asia outlook to 5.8% on Trump tariffs to India

By Ruchi Bhatia

 

The World Bank has cut its forecast for South Asia’s economic growth by nearly a percentage point, as punishing US tariffs on India — the region’s largest economy — weigh on the outlook.

 

In its Tuesday report, the Washington-based institution projected South Asia’s growth to ease to 5.8 per cent in 2026, down from 6.6 per cent this year, a sharper slowdown than previously anticipated. 

 

The projection for 2026 is the region’s lowest in 25 years, excluding periods of global recession or economic downturns, the lender said. 

 

 

“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, in a statement. 

 

The outlook for the region comes as growth in India, the Maldives, and Nepal is set to come under pressure next year, driven by weak export prospects following US President Donald Trump’s trade measures, rising foreign exchange strains, and social unrest, respectively. 

 

While India’s gross domestic product is expected to grow 6.5 per cent in the financial year ending March — lower than the Reserve Bank of India’s 6.8 per cent projection — the forecast for the next fiscal year has been trimmed by 0.2 per cent to 6.3 per cent. 

 

Trump imposed 50 per cent tariffs on Indian exports to the US to penalize New Delhi for its trade barriers and purchases of Russian oil. The levies cover more than three-quarters of goods shipped to the US — India’s largest market — hitting labor-intensive industries such as textiles and jewelry the hardest.

 

The World Bank cautioned that South Asia’s outlook faces mounting risks from a volatile global economy, artificial Intelligence-driven labor disruptions and social unrest. “Each of these shocks could interact with elevated debt levels and weaknesses in the financial sector to create financing pressures,” it added.  

 

Here are the other highlights from the report:

 

• Nepal: Recent unrest and heightened political and economic uncertainty is expected to cause growth to decline to 2.1 per cent this year
• Bangladesh: A stronger pickup in growth is expected in the 2026–27 fiscal year, with the economy projected to expand 6.3 per cent as investment rises amid easing political uncertainty
• Maldives: The government has substantial upcoming debt repayment obligations, which it may struggle to meet given low foreign exchange reserves
• Sri Lanka: Growth in tourism and remittances has been stronger than expected, helping boost economic output in 2026