World Bank cuts FY26 growth forecast, signals recovery in next year with reduced political uncertainty
The global lender emphasized that political transitions following the scheduled elections in Bangladesh this year could improve economic stability, with better predictability in growth-enhancing reform efforts.
The World Bank has downgraded its economic growth forecast for Bangladesh to 4.6% for the current fiscal 2025-26 from its October forecast of 4.8%, but hoped reduced political uncertainty to drive next year's growth to 6.1%.
In its latest Global Economic Prospects report released on Tuesday (13 January), the global lender stated that the country's growth is expected to rebound from an estimated 3.7% growth in FY25, with private consumption strengthening alongside easing inflationary pressures.
It also noted, "Reduced political uncertainty related to the general election in early 2026 and the expected implementation of structural reforms by a new government are projected to support stronger industrial activity in FY2026/27."
Keep updated, follow The Business Standard's Google news channel
"These factors are also anticipated to lead to faster public spending and investment growth than previously projected", read the report.
Moreover, the World Bank emphasized that political transitions following the scheduled elections in Bangladesh this year could improve economic stability, with better predictability in growth-enhancing reform efforts.
Notably, the World Bank's revised outlook broadly aligns with other multilateral agencies. The United Nations earlier projected Bangladesh's economy to grow 4.6% in FY26, rising to 5.4% in FY27.
Similarly, the Asian Development Bank, in its September 2025 outlook, forecast 5% growth in FY26, while the International Monetary Fund estimated growth at 4.9% in FY26 and 5.7% in FY27.
However, the interim government set a 5.5% GDP growth target for FY26, exceeding the projections made by international agencies.
Growth in South Asia to slow
After an estimated strong 7.1% growth in 2025, South Asia's growth is expected to slow to 6.2% in 2026, mainly reflecting the impact of increased US import tariffs on India's export growth.
However, the report stated that growth in the region is then set to increase to 6.5% in 2027, as the effects of political uncertainty in several economies dissipate.
The regional outlook report stated that, "Downside risks to the regional outlook include further increases in trade restrictions and global trade policy uncertainty, tighter-than-expected financial conditions amid heightened financial vulnerabilities, increased social unrest, and more frequent or intense disasters due to natural hazards."
"However, there are multiple upside risks, including possible progress in bilateral trade negotiations, faster technology-led investment growth, and the potential benefits from more resilient political environments after elections in several economies."
Meanwhile, global economic growth projected to remain broadly steady over the next two years, easing to 2.6% in 2026 before rising to 2.7% in 2027, despite persistent trade and policy uncertainty.
