ISLAMABAD: The Asian Development Bank (ADB) has revised downward South Asia’s economic growth outlook for 2025, projecting the region’s GDP to expand by 5.9 percent, down from earlier estimates, mainly due to the expected impact of US tariff hikes.

Growth is forecast to pick up slightly to 6.0 percent in 2026.

According to the Asian Development Outlook September 2025, India faces the steepest tariff increases among developing Asian economies, prompting a downgrade in its growth forecast to 6.5 percent for FY2025, from 6.7 percent in April.

The United States imposed a 25 percent reciprocal tariff on Indian exports from August 7, with a further increase to 50 percent later that month, which is expected to hit key export sectors such as textiles, jewelry, and chemicals.

Afghanistan’s growth projections have been reduced to 1.8 percent in FY2025 and 1.7 percent in FY2026 amid declining aid and fiscal constraints, while Bhutan’s outlook has also been lowered to 8.1 percent due to delays in a major hydroelectric power project.

For Pakistan, the FY2026 growth outlook remains unchanged, with the country slightly exceeding expectations in FY2025. Bangladesh and Nepal are expected to face slower growth next year, affected by US tariffs and domestic political instability respectively.

The ADB report also noted easing inflation across South Asia, thanks to improved agricultural output and favorable weather conditions.

The inflation forecast for 2025 has been lowered to 3.7 percent, down by 1.2 percentage points from April, though it is expected to rise to 4.7 percent in 2026 due to normalizing food prices and currency depreciation in some countries.

Asian Development Outlook

ADB forecasts South Asia’s GDP to slow down in 2025