South Asia GDP may moderate to 5.1% in FY2019-20

Ongoing security concerns may hinder growth, but infra spending could provide support.

South Asia economies are projected to contract from 5.4% to 5.1% in FY2019-20 given ongoing security concerns in the region, according to a Fitch Solutions report.

Pakistan, in particular may see its GDP growth slow down to 2.7% from around 3.3% in the previous year. Bangladesh’s economy could also moderate from 8.1% to 7.8%, whilst India and Sri Lanka are expected to remain flat at 6.8% and 3.2%, respectively.

The report cited that heightened geopolitical tensions between India and Pakistan, as well as the Easter Sunday bombing in Sri Lanka as factors that may affect its growth.

The Indian Air Force launched air strikes on Pakistan last February in response to an attack by a terrorist group in Kashmir on Indian paramilitary forces. Although the tensions have eased since, investors remain uncertain, which translated to downward pressures on growth.
As a result, the incident could likely affect Sri Lanka’s tourism industry, which accounts for 11% of its GDP. The report noted that tourist arrivals have already seen a YTD contraction at 13.4% in June compared to 15.2% last year.

In addition, US President Donald Trump's pronouncements on ending India's preferential trade access to the US may also affect South Asia’s growth. Exports make up 20% of India’s GDP with 15.6% going to the US.

However, ongoing infrastructure spending and investment is expected to counter the negative factors affecting South Asia's GDP growth. India's newly-elected prime minister Modi and his party pledged to spend US$1.4t on infrastructure in the next five years. Bangladesh also has eight infrastructure projects worth US$608.70m (BDT 51.4b) approved.

Meanwhile, Pakistan is expected to see progress on the China-Pakistan Economic Corridor, which is said to be a large part of the Belt and Road Initiative. Sri Lanka had received US$1b loan from China for the construction of the first 37.09 km section of its E04 Central Expressway project.