South Asia is forecast to grow by 6.9% in 2026, before slowing to 6.7% next year, in the World Bank’s latest regional outlook. The projections point to continued strong expansion, but the report warns that energy costs, climate conditions and financial-market shifts could test the region’s resilience. It also argues that wider use of artificial intelligence could support jobs and growth if governments address gaps in skills, infrastructure and business conditions.
The October update says robust domestic demand has helped sustain activity. Strong remittance inflows and recent structural reforms are among the factors it identifies as supporting growth. The 2026 projection is higher than earlier expectations, while the 2027 forecast reflects mounting headwinds.
Growth faces several risks
Persistently elevated energy prices could push inflation higher and tighten financial conditions, the report says. Higher costs can complicate decisions for households, businesses and governments, while tighter finance can make investment harder. The World Bank does not present these outcomes as certain, but identifies them as risks to the outlook if high prices endure.
Weather is another uncertainty. A severe El Niño episode could affect agricultural output and food security, with consequences for a region where farming remains important to livelihoods and food supply. The report also flags the possibility that a sharp reversal in global investment linked to artificial intelligence could trigger financial strains.
Together, these risks underline why the growth projections should be read as forecasts rather than guarantees. The outlook describes a region that has maintained momentum, but whose performance remains exposed to external prices, climate shocks and shifts in international markets.
AI adoption is growing, but uneven
The report examines whether artificial intelligence can help create new sources of growth and employment. It says adoption is increasing in South Asia, while remaining well behind advanced economies. Around 23% of firms in India report using AI, compared with 43% in the United States. The difference is wider for more sophisticated forms of use.
Even with that gap, the World Bank sees opportunities for companies that use AI to identify new markets and participate in global value chains. Its analysis points to growing links between US customers and South Asian suppliers in sectors exposed to AI. That is a potential route to business opportunities, not a promise that every firm or worker will benefit equally.
For adoption to translate into wider gains, businesses need more than access to software. The report highlights workforce skills, reliable infrastructure and a business environment that allows firms to grow. Smaller businesses may face particular barriers to adopting new tools, so the recommendations include measures to make adoption more accessible and to support local innovation.
Public services need locally workable tools
Artificial intelligence may also help deliver services in areas where skilled personnel are scarce, including health, education and agriculture. Examples discussed in the update include AI-based weather forecasts delivered to smallholder farmers in India and AI-assisted retinal screening in Bangladesh.
The report stresses that potential benefits depend on how tools are designed and used. Technology needs to fit local conditions, including the devices people can access and the quality of internet connectivity. Smaller applications that work on basic devices and limited connections may be more practical than systems that assume extensive computing power or constant high-speed access.
That emphasis on fit matters for public services, where a tool’s usefulness depends on whether it can be integrated into everyday work. The update presents AI as a possible aid to frontline services, not a substitute for skilled staff or a guarantee of improved outcomes.
Skills, infrastructure and clear rules
The World Bank’s recommendations combine investment in the foundations of economic activity with steps focused specifically on AI. They include strengthening workforce skills, improving physical and digital infrastructure and creating conditions in which businesses can expand. The report also calls for lowering barriers that prevent smaller firms from adopting AI and fostering local innovation.
Clear rules are part of that agenda. The update recommends a regulatory framework that reduces uncertainty while safeguarding data security and privacy. Such clarity, alongside practical infrastructure and skills, is intended to help businesses and public bodies use AI responsibly and productively.
The central message is twofold: South Asia’s near-term growth remains strong in the forecast, but it is not insulated from global and climate-related shocks; and AI could become one contributor to future growth, provided countries build the conditions needed for broad, locally appropriate adoption. The projected 6.9% expansion in 2026 and 6.7% in 2027 offer a favourable baseline, while the identified risks and policy needs show why sustaining that momentum will require more than technology alone.
