Led by a resilient India, South Asia is expected to maintain its lead as the fastest-growing region in the world, with economic growth forecasted to accelerate from 7% in 2015 to 7.4% in 2016, a World Bank report said.
According to the twice-a-year South Asia Economic Focus, this positive performance hinges on solid growth in services, domestic consumption, and a gradual rise of investments. Limited exposure to the financial turmoil and an improved external position have given most South Asian countries important policy space.
Given India’s weight in the region, its performance greatly influences the projections for South Asia as a whole. Improved investor sentiment and resilience to external shocks are expected to increase India’s growth rate to 7.5 percent in fiscal year (FY) 2015 and further to 7.8 percent in FY2016.
Thanks to low food and commodity prices, as well as a slowdown in the growth of administered prices, inflationary pressures have eased markedly in South Asia. Yet the pace of disinflation varies depending on the price index considered. Revisions to national accounts, together with new comparable data on purchasing power around the world, also raise questions regarding the measurement of prices in the region. According to the report, South Asia could actually have cheaper prices, faster growth and bigger economies than previously thought.
“While the region is now in a position of strength, structural constraints holding back export and investment growth do persist. To keep the momentum and accelerate job creation, governments should enact reforms easing infrastructure bottlenecks and paving the way to greater competitiveness,” World Bank South Asia Chief Economist Martin Rama said. “Fiscal space remains limited while financial sector vulnerabilities persist.”
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