South Asia: Growth is projected to edge down to 5.6% in 2024 before increasing to 5.9% in 2025.

In South Asia, economic growth is anticipated to dip to 5.6% in 2024 before rebounding to 5.9% in 2025. Despite a slight slowdown in 2023 to 5.7%, the region, led by robust expansion in India, remains the fastest-growing among emerging markets. India's growth was fueled by strong public investment and vibrant services activity, compensating for a slowdown in merchandise exports. Bangladesh faced a slowdown in FY2022/23 due to import restrictions and rising costs, while Nepal experienced growth due to easing monetary policy and the removal of import restrictions.

Pakistan witnessed contraction in FY2022/23, with inflation remaining high, though signs of currency stabilization emerged by the end of 2023. Sri Lanka saw economic decline, with ongoing sovereign debt restructuring. Afghanistan struggled with high poverty rates, exacerbated by earthquakes. The outlook for South Asia in 2024 suggests a still-robust 5.6% growth, driven by domestic demand and a modest improvement in external demand.

India's growth is expected to reach 6.4% in FY2024/25, supported by public investment and improved corporate balance sheets. Bangladesh faces a slowdown in growth, driven by elevated inflation and continued import restrictions, while Nepal anticipates a pickup. Pakistan's outlook remains subdued, with tight monetary and contractionary fiscal policies. Sri Lanka's future is uncertain amid debt restructuring, and Maldives and Bhutan expect growth from tourism-related investments and a new hydro plant, respectively. Risks include higher energy and food prices, Middle East conflict escalation, adverse spillovers from policy rate increases, extreme weather events, and election-related uncertainty in 2024. Implementation of growth-friendly policies post-elections could enhance prospects.