South Asia’s growth, despite a slight slowdown to 5.7 percent in 2023, maintains its position as the fastest-growing among emerging market regions. India continues to be the primary driver, contributing significantly to the region’s output.
While India bolstered the region’s growth, other nations in South Asia experienced subdued activity. Bangladesh faced a slowdown due to import restrictions, rising material costs, and external financial pressures in the fiscal year 2022/23. Nepal, impacted by prior import restrictions and monetary policy tightening, also experienced growth constraints.
The World Bank forecasts Bangladesh’s economic growth to decelerate to 5.6 percent in the ongoing fiscal year of 2023-24, with a slight uptick to 5.8 percent in FY25. Elevated inflation might hamper private consumption while low foreign exchange reserves could sustain import restrictions, hindering private investment. Conversely, public investment is expected to remain robust.
In India, despite some deceleration, strong public investment and vibrant services activity propelled growth in 2023. Pakistan, however, saw a contraction in output during FY 2022/23, with elevated inflation reflecting currency depreciation, though signs of currency stabilization emerged later in the year.
Projections suggest a slight dip in South Asia’s growth to 5.6 percent in 2024 before picking up to 5.9 percent the following year. Factors such as domestic demand, including public consumption and investment, will continue to be primary growth drivers. Additionally, a moderate increase in external demand is anticipated to contribute to this growth.
India’s growth is predicted to rise to 6.4 percent in FY 2024/25 after a slight softening in FY 2023/24. However, Pakistan’s outlook remains restrained for the ongoing fiscal year, with expectations of continued tight monetary and contractionary fiscal policies.
Sri Lanka’s future remains uncertain amidst debt restructuring negotiations, while Maldives anticipates growth supported by tourism-related investments. Bhutan expects growth due to the commissioning of a new hydro plant in the upcoming fiscal year.
The forecast faces downside risks due to potential escalations in energy and food prices from Middle East conflicts and unexpected increases in advanced economies’ policy rates. Heightened uncertainty surrounding elections in 2024 in some nations is another risk, although post-election growth-oriented policies could improve prospects.
The World Bank’s Chief Economist, Indermit Gill, expressed concerns about a potential ‘decade of wasted opportunity’ if corrective measures aren’t implemented promptly. The report highlights that global economic growth between 2020 and 2024 might mark the slowest in 30 years, with risks amplified by geopolitical tensions.
While the risk of a global recession has diminished, the report warns of challenges like slowing growth in major economies, tepid global trade, and stringent financial conditions. Global growth is projected to decelerate for the third consecutive year, with developing economies expected to grow 3.9 percent, notably below previous decades’ averages.
To achieve sustainable development goals by 2030, developing nations require a substantial investment increase of about $2.4 trillion annually. However, without comprehensive policy initiatives, the prospects for such an increase seem bleak. Per capita investment growth in developing economies is forecasted to be sluggish between 2023 and 2024, posing significant challenges.
South Asia shall continue to flourish.