Economics & Development

South Asia’s growth again surprised on the upside but is expected to slow in 2026 amid headwinds from global energy market dislocations. Over the medium-term, trade reforms in South Asian countries can unlock further growth by reducing trade barriers, especially for emerging export sectors. Across South Asia, accelerating job creation is becoming harder as job prospects erode in AI-exposed activities and long-standing subnational labor market disparities persist. To achieve policy goals, South Asian countries make proactive use of industrial policies, at about twice the rate of other EMDEs. Since 2022, about half of South Asia’s industrial policies have been directed at the manufacturing sector, particularly toward activities with larger employment, higher average wages, or larger or more productive firms. More than other EMDEs, South Asia has deployed trade-related industrial policy measures but their track record in South Asia has been mixed, with import restrictions lowering imports significantly but export support not materially raising exports. Given limited fiscal space and administrative capacity, cross-cutting measures to improve infrastructure, skilling opportunities, and the business environment remain a priority to accelerate and spread growth and jobs more evenly. These can be complemented by targeted industrial policies, prioritizing those that address market failures directly.

Sub-Saharan Africa’s economic recovery from successive global shocks is losing momentum, with growth projections for 2026 revised downward from those published in October 2025. Geopolitical spillovers from the conflict in the Middle East, high debt service burdens, and structural weaknesses are limiting growth prospects and job creation. Against this backdrop, the report argues that Africa’s growth challenge is structural, reflected in low investment, weak productivity, and limited job creation. While interest in industrial policy has revived, past efforts often failed due to weak implementation capacity, fiscal and institutional constraints. The report proposes a pragmatic, ecosystem-based approach that aligns policy tools with country capabilities to deliver productivity gains and durable structural transformation.