New Delhi: India’s economy is expected to remain a key driver of South Asia’s expansion, even as growth moderates from an estimated 7.4% in 2025 to 6.6% in 2026. The outlook is supported by resilient household spending, strong public investment, and lower interest rates, which are expected to keep domestic demand firm, according to the World Economic Situation and Prospects 2026, released by the UN on Thursday.
The report further said that inflation in India is projected at about 4.1% in 2026, among the lowest in the region. While higher US tariffs may impact a few export categories, most major segments are likely to hold steady, with continued demand from other markets helping offset any drag.
South Asia’s economic outlook remains strong, driven by firm private consumption and continued public investment. Inflation across the region dropped sharply in 2025, with most countries now recording price rises at or below central bank targets and long-term norms. Average consumer inflation is expected to inch up from an estimated 8.3% in 2025 to about 8.7% in 2026, ranging from 3.2% in Nepal to 35.4% in the Islamic Republic of Iran, the report said.
On the other hand, global output is projected to rise by 2.7% in 2026, just below the estimated 2.8% for 2025 and well short of the pre-pandemic average of 3.2%. Growth held up through 2025 as economies showed unexpected resilience to sharp U.S. tariff hikes, supported by firm consumer demand and easing inflation. But underlying strains remain, with weak investment and tight fiscal space dragging on activity and increasing the risk that global growth settles below pre-pandemic norms, the report pointed out.
“A combination of economic, geopolitical, and technological tensions is reshaping the global landscape, generating new economic uncertainty and social vulnerabilities,” said UN Secretary-General António Guterres. “Many developing economies continue to struggle and, as a result, progress towards the Sustainable Development Goals remains distant for much of the world,” he added.
Commenting on East Asia, the UN report said that the region’s growth is set to ease over the near term. In the first three quarters of 2025, export volumes were lifted by front-loading ahead of U.S. tariff hikes, while solid labour markets and easing inflation helped sustain private consumption. The export boost is expected to unwind, but domestic demand should hold firm, supported by accommodative monetary and fiscal policies. Regional inflation is forecast at 1.1% in 2026, up from an estimated 0.5% in 2025.
China’s economy is projected to grow by 4.6% in 2026 and 4.5% in 2027, after an estimated 4.9% rise in 2025. A temporary thaw in trade tensions with the US, including targeted tariff relief and a one-year pause in trade escalation, has steadied business sentiment. Combined with supportive policy measures, this is expected to keep domestic demand resilient and soften external pressures.
Risks to the outlook for East and South Asia remain skewed to the downside. Trade policy uncertainty persists, even though recent US tariff hikes were milder than expected and some agreements have been reached. A slowdown in major economies such as China, the US, and the European Union could further drag on regional trade, investment, and tourism.
Fragile fiscal positions pose another challenge, with high public debt limiting policy room in several countries. In South Asia, especially, elevated debt burdens restrict the ability to cushion external shocks or provide countercyclical support.
Most central banks in East and South Asia cut interest rates in 2025 as inflation cooled and the U.S. Federal Reserve shifted lower. Further easing is expected through 2026, although the timing and scale will differ across economies.
Fiscal policy paths are diverging across the two regions. East Asian governments adopted a more expansionary approach in 2025, launching measures to bolster household spending, protect vulnerable communities, and speed up infrastructure investment. By contrast, South Asian economies remain focused on fiscal consolidation and structural reforms to shore up public finances and maintain macroeconomic stability.
With trade policy uncertainty lingering, Asian economies are deepening regional integration through agreements such as the Regional Comprehensive Economic Partnership. National strategies are centred on upgrading infrastructure, advancing digitalization, and modernising manufacturing to strengthen competitiveness and resilience.
The report stresses that navigating an era marked by shifting trade patterns, persistent price pressures and climate shocks will require stronger global coordination and collective action, even as geopolitical tensions rise and policy agendas grow more inward-looking. Sustained progress hinges on rebuilding trust, improving policy predictability, and reviving support for an open, rules-based multilateral trading system.
It highlights the Sevilla Commitment, adopted at the Fourth International Conference on Financing for Development, as a roadmap for reinvigorating multilateral cooperation, reforming the global financial architecture, and scaling up development financing. Advancing its priorities – such as clearer debt resolution frameworks and expanded concessional and climate funding – is seen as critical to lowering systemic risks and supporting a more stable, fairer global economy.
