World Bank Warns of Economic Slowdown in This Asian Region Due to Iran-Israel-US War Impact
The World Bank has warned of a slowdown in economic growth in South Asia in 2026 amid the increasing impact of the conflict in the Middle East and disruptions in global energy markets. In its latest report, the institution projects that the region’s growth will only reach 6.3 percent in 2026, down from 7.0 percent in 2025.
This decline is occurring amidst the high dependence of South Asian countries on energy imports, making the region highly vulnerable to fluctuations in oil prices and global supply disruptions.
Nevertheless, the World Bank forecasts that growth will strengthen again to 6.9 percent in 2027 and will continue to position South Asia as the fastest-growing region among developing countries.
Global uncertainty is the main factor overshadowing the region’s economic prospects. The World Bank assesses that the Middle East conflict has the potential to deliver significant spillover effects, from rising inflation to tighter monetary policies. Additionally, remittance flows are also expected to come under pressure.
World Bank President Ajay Banga emphasised that the impact of war cannot be avoided by the global economy. “The war in the Middle East will cause slower global growth and higher inflation, regardless of how quickly the conflict ends,” he stated, as quoted from CNA Asia on Friday, 10 April 2026.
Amid these pressures, India is expected to remain the main driver of regional growth. The World Bank projects that India’s economy will grow by 7.6 percent in fiscal year 2025/2026 before slowing to 6.6 percent in 2026/2027. These figures demonstrate India’s relative resilience compared to other countries in the region.
Meanwhile, other South Asian countries exhibit more diverse trends. Bangladesh is projected to grow by 3.9 percent as it recovers from political instability, while Bhutan is expected to record high growth of 7.1 percent thanks to hydropower projects.
Sri Lanka is anticipated to experience a slowdown in growth to 3.6 percent in 2026 from 5.0 percent in 2025 due to energy price pressures. The Maldives is even predicted to slow sharply to 0.7 percent due to pressures on the tourism sector, fuel costs, and financing conditions. Nepal is expected to grow by 2.3 percent before recovering as the impact of domestic turmoil subsides.
World Bank Vice President for South Asia, Johannes Zutt, assessed that the region’s prospects remain quite strong despite facing global challenges. “Although the global environment is challenging, South Asia’s growth prospects remain strong,” he stated.