South Asia’s outlook in five charts

South Asia remains the fastest growing region in the world with stronger than expected growth in 2025. But this momentum is expected to ease, with a significant slowdown expected in 2026. There are several downside risks that might affect the region’s outlook, including spillovers from a weaker-than-anticipated global economy and uncertainty around trade policy as well as recurring social unrest in the region.

The region is also not creating enough jobs for its rapidly growing population. New opportunities from potential trade reform and the growing adoption of AI could increase labor demand and help realize South Asia’s demographic dividend.

1.     Stronger-than-expected growth in 2025, slowdown expected in 2026

Growth in South Asia is expected to slow sharply from 6.6 percent in 2025 to 5.8 percent in 2026. Growth forecasts for 2026 have been downgraded for India, Maldives, and Nepal, driven by weaker export prospects, growing foreign exchange pressures, and social unrest, respectively. The forecasts for Bangladesh and Sri Lanka have been upgraded as crises in these countries recede, and current account and fiscal balances improve, putting future growth on a stronger footing.

South Asia growth forecasts

Source: South Asia Development Update; World Bank Macro Poverty Outlook; World Bank. 

Note: Lines show the vintages of World Bank growth forecasts between 2024 and 2025.     

2.   India remains world’s fastest-growing major economy

In Bangladesh, growth is expected to continue accelerating as it recovers from the disruptions around the collapse of the government last year, but will remain below the country’s pre-pandemic average. In Bhutan, delays to hydropower construction projects have contributed to a downgrade to growth in 2025/26, which is reversed in 2026/27 as construction speed picks up. India is expected to remain the world’s fastest-growing major economy, underpinned by continued strength in consumption growth and recent reforms to the Goods and Services Tax. In Maldives, tourism is expected to be the main source of growth, but substantial current account and fiscal deficits give rise to downside risks. In Nepal, recent unrest and heightened political and economic uncertainty is expected to cause a substantial slowdown in growth in FY25/26. In Sri Lanka, the growth of tourism and remittances has been stronger than expected, and the economy is expected to regain its 2018 level of real output in 2026.

Growth forecasts in South Asia

Source: World Bank Macro Poverty Outlook; World Bank.

Notes: BGD = Bangladesh; BTN = Bhutan; IND = India; LKA = Sri Lanka; MDV = Maldives; NPL = Nepal. For India, 2024, 2025, 2026 and 2027 refer to FY24/25, FY25/26, FY26/27 and FY27/28, respectively. For Bangladesh, Bhutan and Nepal 2025, 2026 and 2027 refer to FY24/25, FY 25/26, and FY26/27, respectively.

3.     Low life satisfaction in the region

Many countries in South Asia have experienced bouts of social unrest in recent years. Public uprisings led to the collapse of the government in Nepal in September, in Bangladesh in August 2024, and in Sri Lanka in July 2022. Despite South Asia’s rapid economic progress, life satisfaction in the region is low. In the latest World Happiness Ranking of 143 countries, Bangladesh ranks 129th, Sri Lanka 128th, and India 126th.

Happiness across all ages, average ranking of countries 

Source: World Happiness Report (2025); World Bank. 

Note: AE = advanced economies; EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa. Average life evaluation rank by region (whole population). Happiest country has a rank of 1, with increasing unhappiness as rank increases.        

4.     Not enough jobs

Some of the dissatisfaction in the region may be due to the lack of sufficient jobs. South Asia is the fastest-growing EMDE region, but job creation is still slower than needed to absorb the growing working-age population. Over 2010–24, the working age population in South Asia grew by about 16 million every year, but the economy created fewer than 10 million new jobs annually.

Annual working-age population and employment increase, 2010–24 

Sources: International Labour Organization; Penn World Table (database); United Nations World Population; World Bank.                                                                

Notes: EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa. Working age population defined as individuals between the ages of 15 and 64.

5.     Need for efficient labor markets

Increasing labor demand is critical for realizing South Asia’s demographic dividend. Both trade reform and the growing adoption of AI could spark major shifts in labor market opportunities. Seizing these opportunities requires efficient labor markets. Workers should be able to switch jobs easily, and productive firms should be able to grow and hire. Reducing mobility costs can help workers relocate to the firms, sectors, and regions they can be most productive, alleviate skill constraints, and mitigate the costs of disruption from new technologies.

Labor mobility costs

Sources: Artuc, Lederman and Porto (2015); World Bank.

Notes: EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa. Higher scores indicate higher mobility costs. Bars show the median level across regional economies. SAR includes Bangladesh and India. Sample includes 33 EMDEs.