South Asia’s economic growth remains robust at 6.6 percent in 2025, but the World Bank has cautioned that the region faces a slowdown ahead unless countries adopt reforms to promote trade openness and technology integration, particularly artificial intelligence (AI). These measures, the Bank says, are crucial to creating jobs and sustaining long-term growth.
The latest South Asia Development Update, titled Jobs, AI, and Trade, projects that growth will decelerate to 5.8 percent in 2026, a 0.6 percentage point downgrade from the April forecast. The report identifies key risks including global economic spillovers, uncertainty in trade policy, socio-political unrest, and labor market disruptions driven by AI and emerging technologies.
“South Asia has enormous economic potential and remains the fastest-growing region in the world,” said Johannes Zutt, World Bank Vice President for South Asia. “However, countries must proactively address these risks. By embracing AI and lowering trade barriers—especially on intermediate goods—they can raise productivity, attract private investment, and create much-needed jobs.”
The report points out that South Asian economies are among the least open to international trade and finance, with high tariffs that protect declining sectors and hinder manufacturing growth. Tariffs on intermediate goods in the region are more than double those of other emerging and developing economies, stifling industrial competitiveness.
Conversely, services sectors—which face lower tariffs—have driven about 75 percent of employment growth over the past decade. The World Bank recommends phased tariff reductions, ideally within broader free trade agreements, to boost private investment and expand job opportunities.
On technology, the report highlights the dual impact of AI. While AI threatens some white-collar jobs, especially in business services and IT, it also presents significant opportunities for productivity gains where AI complements human work. Data shows that AI-related jobs in South Asia offer a 30 percent wage premium compared to other professional roles, indicating rising demand for AI skills.
To sustain growth and employment, the report advises governments to simplify regulations that discourage firm expansion, improve transport and digital infrastructure, enhance labor mobility, and strengthen social safety nets for workers affected by automation.
“Greater trade openness and AI adoption could transform South Asia’s economies,” said Franziska Ohnsorge, the World Bank’s Chief Economist for South Asia. “Policies that support worker mobility across firms, sectors, and locations are vital to channeling resources toward productive industries and stimulating sustainable job creation.”
Overall, the World Bank emphasizes that smart policy reforms, technological readiness, and inclusive trade frameworks are essential if South Asia is to maintain its growth momentum amid a rapidly changing global economy.
