South Asia is expected to remain the fastest growing region in the world. Growth in South Asia is forecast to pick up to 6.9 percent in 2018, mainly reflecting India emerging from its slowdown. Growth should further strengthen to 7.1 percent on average in 2019-20, reflecting a broad-based improvement across most of the region. South Asia should maintain its position as the fastest growing region and even extend its lead over East Asia and the Pacific. While this forecast is broadly unchanged from January 2018, the expected growth rate is slightly lower, mainly due to a downward revision for Pakistan in 2019. The baseline scenario assumes an ongoing, but gradually moderating recovery in global economy and global trade, higher commodity prices, and gradual tightening of global financing conditions. Although risks to the forecast have become more balanced, with potential for further upside surprises to global growth, they are still tilted to the downside.
Despite more favorable international conditions, domestic demand will remain the main driver of economic growth. Private consumption is expected to firm and offset a moderation in public consumption as fiscal policy gradually tightens. Gross fixed capital formation should remain above 7 percent over the forecast horizon. Private investment is expected to accelerate and offset moderating public investment. Import growth will peak in 2018, and moderate to around 6 percent in 2020, helping reduce the pressure on the current account. Export growth, which underperformed last year, is expected to strengthen to 6 percent in 2019, which is nevertheless lower than projected in January.
Growth rates should remain relatively stable across countries in South Asia. Growth in India is projected to accelerate to 7.3 percent this year, and to 7.5 percent in 2019 and 2020, reflecting stronger private spending and export growth. Sri Lanka’s GDP growth may average around 4.5 percent over the medium term, reflecting a recovery from the effects on agriculture of last year’s adverse weather disruptions, as well as robust consumption and investment growth. In Bhutan and Maldives, growth will continue to benefit from construction and
Risks to the regional forecast are more balanced than in the January 2018 assessment, with potential for further upside surprises thanks to global growth. Downside risks are mainly related to the possibility of domestic policy slippages, such as a weakening of fiscal policies or setbacks in areas of reforms to improve the investment climate or to strengthen the banking sector. However, the region is also vulnerable to exogenous domestic events like increased insecurity and natural disasters. Although South Asia is not a larger exporter of goods, it could also be adversely affected by external shocks, such as escalating trade protectionism. And financial markets in the largest countries in the region could be jittery in the event of an abrupt tightening of global financial conditions.
Last Updated: Apr 15, 2018