South Asia loses top global growth driver position to East Asia

After leading the global economic growth for two years, South Asia has lost its number one place to East Asia and the Pacific as the region’s economic growth is expected to drop to 6.9 percent in 2017, from 7.5 percent in 2016.

But the World Bank expects the growth could rebound to 7.1 percent in 2018 with the right mix of policies and reforms. 

The World Bank attributes the slowdown in growth to temporary shocks and longer-term challenges, most notably in India, such as decrease in private investment and an increase in imports and government spending. 

Despite the temporary slowdown, the World Bank said the South Asian economies stand to gain from the continued recovery in advanced economies, which are their largest export markets. The estimated economic growth in India, which is the largest economy in the region, slowed in 2017 to 7.1 percent, from 8.0 percent in 2016, due to surging imports and declining private investment along with the effects from withdrawing large amounts of banknotes and the introduction of the Goods and Services Tax (GST). 
“India’s growth is expected to rebound to 7.4 percent in 2018,” the World Bank said. 

Meanwhile, Pakistan’s economy continued its upward momentum and is projected to accelerate to more than 5.0 percent in 2017 and 2018, “if deficits are well managed”.  
“Nepal has seen an economic rebound after natural disaster and political shocks but its recovery may be impacted by the recent flooding and other factors,” the World Bank said, estimating a growth of 7.5 percent for this year but 4.6 percent in 2018. 

The World Bank said the economy in Bangladesh remains strong with accelerating industrial production and resilient services. Growth is expected to be above 7 percent in 2017 and 2018. 

“However, deficits are widening as export growth and remittances have weakened, which should be monitored and addressed along with increasing stresses on the financial sector and uncertainties around the upcoming elections.”

Meanwhile, the economic activity in Bhutan, which has a gross national happiness index, has kept growth strong with the economy expected to grow at 6.6 percent in 2017 and 6.7 percent in 2018. 

“Hydropower projects, supportive policies combined with low inflation, a stable exchange rate and greater financial reserves have contributed to growth and poverty reduction. However, risks are emerging, including possible delays in hydropower construction and the slowdown in growth in India,” the World Bank said.

The Nepal economy is estimated to rebound to 7.5 percent but would slow down in 2018 due to the heaviest floods in decades, slow recovery of exports and an increase in lending rates.

Afghanistan will grow by 2.6 percent and 3.4 percent during 2017 and 2018, respectively, as economic recovery remains slow with continuing insecurity curbing private investment and consumer demand, the World Bank said