South Asia : between solid growth and major challenges

South Asia is confirming in 2025 a stronger-than-expected momentum, according to the World Bank’s recent South Asia Development Update. With growth projected at 6.6% in 2025—driven largely by solid performances in India, Bangladesh, and Sri Lanka—the region remains the best performer among emerging economies. But this upturn may be short-lived: in 2026, growth is expected to slow to 5.8%, hindered by a less favorable global environment, persistent geopolitical tensions, and potential labor market disruptions tied to the adoption of AI.

South Asia remains a driver of the global economy, but its growth is vulnerable to several external shocks

“South Asia remains a driver of the global economy, but its growth is vulnerable to several external shocks,” the report notes. The risks identified are numerous: a prolonged slowdown in the global economy, rising trade tensions, social instability, and uneven exposure to disruptive technologies.

AI: a major opportunity… but not for all

The report highlights that South Asia’s exposure to AI remains “moderate” compared to other emerging economies, due to the still-large share of agricultural and manual jobs. However, 15% of jobs show strong complementarity with AI, paving the way for significant productivity gains. Jobs requiring AI-related skills currently benefit from a wage premium of nearly 30%.

The effects of AI will not be uniform: it will create as many jobs as it destroys

But younger workers—particularly those with intermediate levels of education—remain vulnerable to technological substitution. “The effects of AI will not be uniform: it will create as many jobs as it destroys,” warns the World Bank.

Trade: a key lever for employment

The report also underscores the need for ambitious trade reforms. Data shows that periods of liberalization have often been linked to rapid increases in employment. Yet, the region remains among the most protectionist in the world.

Halving tariff barriers, combined with greater worker mobility, could lead to a significant gain in income per capita. According to the World Bank, even a 5% reduction in occupational transition costs would greatly amplify the benefits of trade openness.

South Asia will only create enough jobs if it invests in training, mobility, and productivity

In a region where the labor force is growing by 1.5% to 2% per year, employment remains a top political priority. “South Asia will only create enough jobs if it invests in training, mobility, and productivity,” the report states.

Global impact: A regional slowdown would affect trade flows, international investment, and energy balances

With nearly 2 billion people and a growing role in global value chains, South Asia’s economic trajectories directly influence the global economy. A regional slowdown would affect trade flows, international investment, and energy balances.

The World Bank is calling for coordinated reforms: gradual trade liberalization, development of skills adapted to AI, stronger social safety nets, and improved regional connectivity. The goal: transforming rapid growth into sustainable prosperity.

Access the full report: South Asia Development Update