Led by a pick-up in growth in India, which accounts for about 70 per cent of regional output, South Asia’s economic growth is set to reach a four-year high in 2015, according to the United Nations World Economic Situation and Prospects 2015 (WESP) report.
According to the report, the average gross domestic product (GDP) growth of South Asia accelerated from 3.7 per cent in 2013 to 4.9 per cent in 2014, and is projected to strengthen further to 5.4 per cent in 2015 and 5.7 per cent in 2016, with the recovery mainly led by India.
According to WESP, growth in India picked up over the past year, helped by government reforms that encouraged consumption and investment. India’s economy expanded by an estimated 5.4 per cent in 2014, an improvement from growth of 4.7 per cent recorded in 2013, but still significantly below the 8 per cent pace of the pre-crisis period.
The recovery is partly the result of improved market sentiment after the new government took office in the May 2014 and announced plans to reform the bureaucracy, labour laws and public subsidies. A subpar monsoon, along with fiscal constraints, has, however, weighed on Indian economic activity. Going forward, India is projected to see a gradual acceleration in growth, with GDP forecast to expand by 5.9 per cent in 2015 and 6.3 per cent in 2016.
Bangladesh and Sri Lanka maintained strong growth of 6.2 per cent and 7.8 per cent, respectively, in 2014, amid buoyant household consumption and investment, the report notes. Both economies are expected to expand at a strong pace in 2015 and 2016 as favourable conditions remain largely intact.
Pakistan’s GDP growth strengthened to an estimated 4.2 per cent in 2014; however, growth is forecast to decline slightly in 2015, before picking up again in 2016.
The WESP also counts Iran as part of South Asia and says that the country has seen a return to mildly positive growth in 2014 as macroeconomic conditions stabilised and the partial lifting of sanctions helped non-oil exports. A more robust recovery depends, however, on a comprehensive nuclear agreement and further sanctions relief.
Economic growth in Nepal is projected to remain at about 5 per cent in 2015 and 2016 as activity is supported by enhanced political stability and a steady increase in tourism and remittance inflows.
However, the South Asian region faces a range of significant employment challenges. In Iran, the unemployment rate was estimated at 10.7 per cent in the second quarter of 2014 as economic activity remained weak. Unemployment in Sri Lanka, by contrast, declined further to 4.1 per cent in the first quarter of 2014 amid robust domestic demand.