SOUTH A S I A
G L O B A L E C O N O M I C P R O S P E C T S | JUNE 2022
the rest of the region, consumer inflation has remained low at about 1 percent, reflecting a fixed exchange rate and substantial food and energyrelated subsidies. Inflation expectations have risen in the region. Higher inflation, especially for food prices, are a significant concern given the region's large share of the global poor, who spend a substantial proportion of their income on food.
Outlook Growth in South Asia is projected to moderate to 6.8 and 5.8 percent in 2022 and 2023, respectively, as the momentum of the recovery wanes, and the war in Ukraine undermines external demand and erodes real incomes through higher food and energy prices (figure 2.5.2.A). Weakening net exports and eroded consumer demand amid higher prices are expected to remain a significant drag on activity, the former reducing growth in 2022 by 2 percentage points (figure 2.5.2.B). As the recovery from the pandemic recession matures, growth will be supported by private consumption, which is projected to contribute about 4 percentage points a year to GDP growth over 2022-24. The contribution to growth from government consumption will peak in 2022 and wane thereafter as fiscal support is withdrawn (figure 2.5.2.C). In India, growth is forecast to edge down to 7.5 percent in fiscal year 2022/23, with headwinds from rising inflation, supply chain disruptions, and geopolitical tensions offsetting buoyancy in the recovery of services consumption from the pandemic. Growth will also be supported by fixed investment undertaken by the private sector and by the government, which has introduced incentives and reforms to improve the business climate. This forecast reflects a 1.2 percentage point downward revision of growth from the January projection. Growth is expected to slow further to 7.1 percent in 2023/24 back towards its longer-run potential. In the region excluding India, GDP growth, after peaking at 5.7 percent in fiscal year 2021/22 (ending June 2022), is projected to slow to 4.0 percent in 2022/23 on account of policy consolidation, rising inflation, and weakening
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FIGURE 2.5.2 SAR: Outlook Economic prospects for the region have deteriorated since January, and growth in 2022 is now expected to slow to a rate equal to the average of the decade before the pandemic. Private consumption is forecast to remain the largest driver of growth, but its contribution is projected to wane while net exports remain a significant drag. Average real interest rates reflect rapid tightening of policy rates in Pakistan and Sri Lanka and a surprise policy hike in India. Fiscal policy remains accommodative but is gradually tightening. The external current account deficit is projected to widen on geopolitical tensions, and gross government debt remains high but is expected to stabilize over the forecast horizon. B. Contributions to growth
A. GDP growth Percent 9
Percentage points
2010-19 average
IIII 11
2021 2021
2022
2023
SAR
2021 2021
2022 2023 SAR excluding India
C. Primary fiscal balance and real monetary policy rate Percent
Percent of GDP
•Primary balance (RHS) —Real interest rate 3 2 1 0 -1 -2 -3
2018
2019
2020
2021
2022
12 10
Net exports Fixed investment • Government consumption • Private consumption
I..III! 2018 2019 2020 2021 2022 2023 2024 D. Current account balance and debt Percent of GDP Percent of GDP ^Current account 90 —Gross government debt (RHS)
85
2019
2020 2021 2022 2023 2024
Sources: Consensus Economics; Haver Analytics; World Bank. Note: EMDEs = emerging market and developing economies; SAR = South Asia. A.B. GDP at average 2010-19 prices and market exchange rates. C. Unweighted average. "Real interest rate" is the nominal policy rate less inflation forecasts at a oneyear fixed horizon for Bangladesh, India, Pakistan, and Sri Lanka. "Primary balance" excludes Afghanistan. D. GDP-weighted average. Data exclude Afghanistan.
external growth. In Pakistan, growth is expected to slow from 5.7 percent in FY2020/21 to 4.0 percent in 2022/23 as foreign demand slows significantly and policy support is withdrawn to contain external and fiscal imbalances.1 The current account deficit for the region as a whole is forecast to widen to levels last seen a decade ago (figure 2.5.2.D). In Bangladesh, growth is forecast
! The Government's preliminary estimate for real GDP (factor cost) growth for 2021/22 is 6.0 percent.
