South Asia to Grow 6.9% this Year, World Bank Says; Nepal Trails at 3.7% After Flood

Washington – South Asia’s economy will grow 6.9 percent this year, faster than earlier forecast, as strong domestic demand shields it from global shocks, according to the World Bank Group.

The projection is in the bank’s South Asia Economic Update, titled “Adopting AI for Growth.” It credits strong remittance inflows and recent reforms, but expects growth to slow to 6.7 percent in 2027.

Three risks could drag it down: high energy prices that push up inflation and tighten credit, a severe El Niño that damages harvests and food security, and a sharp fall in global artificial intelligence (AI) investment that unsettles financial markets.

“South Asia has demonstrated remarkable resilience in a challenging global environment,” said Johannes Zutt, the bank’s Vice President for South Asia. “But the region needs to invest in new drivers of growth to sustain momentum and create more jobs.”

The report names AI as a possible new driver, though the region is far behind richer economies in using it. About 23 percent of Indian firms use AI, compared with 43 percent in the United States, and the gap is wider for advanced uses. Adoption is speeding up, and suppliers tied to AI-related global value chains are winning new business.

AI could also ease shortages of skilled workers in health, education and agriculture, the report says. India sends AI-generated weather forecasts to smallholder farmers, and Bangladesh uses AI to help screen patients’ eyes. The bank warned that such tools must be designed for local conditions, including light apps that run on basic devices and weak connections.

Franziska Ohnsorge, the bank’s Chief Economist for Asia, said AI could “transform South Asia’s development trajectory” by raising productivity, widening export opportunities and improving public services. “But to reap these benefits, governments need to address the foundational gaps that hold back adoption,” she said.

The report urges governments to train workers, upgrade physical and digital infrastructure, help small firms adopt AI, and set clear rules that protect data and privacy.

Nepal is expected to grow more slowly than the regional average. In the Nepal Development Update, released alongside the regional report, the bank projects growth of 3.7 percent in FY26/27 because the August 26 Rasuwa flood hit industry and services. It expects reconstruction to lift growth to 5.2 percent in FY27/28.