As per a report published by United Nations, South Asia’s economy is projected to grow by 4.7 per cent in calendar year 2023 and 5.8 per cent in 2024, a slight downward revision of 0.1 percentage points for both years from the forecasts in January. High inflation, tighter financial conditions, weaker private consumption, and external imbalances will continue to impact growth in 2023. As the region is highly vulnerable to extreme climate conditions, potential droughts and floods also pose a significant risk to the economic outlook.
India’s economy – the largest in the region – is expected to expand by 5.8 per cent in 2023 and 6.7 per cent in 2024 (calendar year basis), supported by resilient domestic demand. However, higher interest rates and weaker external demand will continue to weigh on investment and exports in 2023.
Regional consumer price inflation is projected to average 11.0 per cent in 2023 and 9.4 per cent in 2024, slightly lower than the 12.9 per cent recorded in 2022. Inflation in India is expected to decelerate to 5.5 per cent in 2023 as global commodity prices moderate and slower currency depreciation reduces imported inflation. Inflation rates in Pakistan and Sri Lanka are expected to remain in double digits in the coming months owing to weakening local currencies and supply-side constraints. Domestic food inflation remains elevated due to country-specific factors, challenging food security across the region, particularly in Afghanistan, Bangladesh, and Pakistan.
Central banks in the region continued their interest rates hikes in early 2023 to tackle inflation and stabilize exchange rates. However, the Reserve Bank of India kept the policy rate unchanged at 6.5 per cent in April 2023, after a cumulative increase of 250 basis points since May 2022.
Report: World Economic Situation and Prospects as of mid-2023
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