(MENAFN) The World Bank has warned that new US tariffs on South Asian imports could significantly dampen the region’s economic growth in 2026, cutting its growth projection from 6.4% to 5.8%, according to a report published on Tuesday.

The report—covering India, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives—links the expected slowdown to the impact of higher import duties imposed by Washington under US President Donald Trump’s administration.

In August, the US introduced 50% tariffs on most Indian imports, including a 25% punitive levy on Indian purchases of Russian oil. Bangladesh and Sri Lanka have also been hit, facing 35% and 20% tariffs respectively.

The World Bank said the tariffs are expected to hurt South Asia’s manufacturing sector by raising the cost of importing key components and raw materials, weakening production and export competitiveness.

Other risks identified in the report include spillovers from the global economic slowdown, labor market disruptions, and socio-political unrest in several countries.

Despite the downgrade, the report said India will remain the world’s fastest-growing major economy, supported by robust consumer spending, improved agricultural output, and rising rural wages. However, India’s growth forecast for the 2026–27 fiscal year has been revised downward to 6.3% from 6.5%, due in part to the tariff impact.

Indian Finance Minister Nirmala Sitharaman said last week that the country has the resilience and capacity to “absorb shocks” from the tariffs, pointing to strong domestic demand and diversification of trade partners.

The World Bank expects Bangladesh and Sri Lanka to see accelerated growth in the coming years as both economies recover from earlier financial strains. However, it forecasts slower growth for Bhutan and Nepal in 2025–26, and warns that foreign exchange pressures could constrain Maldives’ expansion in 2026.

Overall, the report highlights that trade tensions with the US could be a key drag on South Asia’s medium-term growth trajectory, even as domestic demand and investment remain strong drivers of regional resilience.

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