The World Bank has painted a concerning picture of South Asia’s economic outlook in its latest report, Global Economic Prospects, June 2025. The report highlights that economic activity across the region has slowed further following an unexpectedly weak performance in 2024. Rising global trade tensions, persistent policy uncertainty, and financial market volatility have dampened momentum in economies such as India, Pakistan, and Bangladesh. Notably, the World Bank singles out political instability in Bangladesh as a significant factor behind the country’s economic slowdown.
Growth Slowdown Across the Region
According to the report, South Asia’s largest economy, India, has experienced a modest decline in growth. This deceleration is attributed to sluggish investment activity and reduced industrial output, reflecting demand-side constraints and supply-side bottlenecks. Nevertheless, the construction and services sectors have remained resilient, and strong rural demand has supported an agricultural recovery from previous drought conditions.
Outside India, growth across South Asia has generally remained stable, albeit at subdued levels. In Pakistan, growth has marginally increased to 2.7% in the 2024–25 fiscal year, driven by a modest expansion in both the agriculture and industrial sectors. Tourism has emerged as a bright spot in countries like Bhutan, Maldives, and Sri Lanka in early 2025, supporting recovery in these economies. Sri Lanka, in particular, saw a rebound in industrial production during 2024.
Bhutan benefited from increased hydropower generation, which boosted cross-border electricity sales and government revenues. Similarly, Nepal’s industrial sector has gained from expanded hydropower output.
Bangladesh: Political Instability Hampers Growth
The report provides a sobering analysis of Bangladesh’s current economic performance. It estimates that the country’s growth has declined to 3.3% for the 2024–25 fiscal year (July 2024–June 2025). The World Bank attributes this contraction largely to the adverse impact of political unrest in 2024. Heightened uncertainty and rising costs of raw materials have hampered private investment, while reduced capital goods imports have negatively affected industrial production.
However, the outlook is cautiously optimistic. The World Bank projects that Bangladesh’s GDP growth will improve to 4.9% in 2025–26 and further to 5.7% in 2026–27. This recovery will depend heavily on the restoration of political stability, strengthened business conditions, and the successful implementation of reforms aimed at job creation. A steady flow of remittances and easing inflation are expected to reinforce private consumption. Nonetheless, export growth could remain constrained due to weak demand among key trading partners and the rise of global trade barriers.
Inflation Trends and Monetary Policy Challenges
The report also analyzes inflation trends and financial conditions across the region. It notes that average inflation in South Asia has gradually decreased, with most countries now operating within or below their central banks’ target inflation ranges. This has allowed some countries to ease monetary policy. India, for instance, reduced its policy rates in early 2025. Pakistan saw headline inflation drop below 2% in the same period, while Sri Lanka has experienced deflation since September 2024.
Bangladesh, however, remains an outlier. Despite several interest rate hikes over the past year, core inflation continues to stay above the central bank’s target range. This persistent inflationary pressure presents a significant challenge for macroeconomic management and consumer purchasing power.
Regional Outlook and Employment Concerns
The World Bank forecasts that South Asia’s growth will fall to 5.8% in 2025, down from earlier projections. The revision reflects increasing trade barriers, declining business confidence, and weakening investment activity. These challenges, the report warns, could exacerbate the region’s already pressing employment issues, especially in countries with large youth populations.
On a more hopeful note, the region’s economic growth is expected to rebound to an average of 6.2% by 2026–27, assuming stability and supportive policy measures are maintained. Still, structural challenges such as job creation, social safety nets, and sustainable investment remain pivotal areas for regional policymakers.
In conclusion, the World Bank’s June 2025 assessment underscores the vulnerability of South Asian economies to both global headwinds and internal political dynamics. For Bangladesh, in particular, the findings emphasize the critical importance of political stability and coherent policy reform to revive investor confidence, enhance industrial output, and place the economy back on a path of sustainable growth.
