Islamabad, April 14, 2015 (PPI-OT): Driven by a strong expansion in India, coupled with favourable oil prices, economic growth in South Asia is expected to accelerate. The region is among the greatest global beneficiaries from cheap oil, as all countries in it are net oil importers. In the last quarter of 2014 South Asia was already the fastest-growing region in the world, a World Bank report said.
According to the twice-a-year South Asia Economic Focus report, regional growth is projected to steadily increase from 7 percent in 2015 to 7.6 percent by 2017 through maintaining strong consumption and increasing investment. Given India’s weight in regional Gross Domestic Product (GDP), the projections reflect to a large extent India’s expected growth acceleration, driven by business-oriented reforms and improved investor sentiment.
The decline in oil prices has been reflected in the domestic prices of oil products to different extents across the region. The pass-through exceeded 50 percent for most oil products in Pakistan, but was nil in Bangladesh.
Together with favourable food prices, cheaper oil has contributed to a rapid deceleration of inflation. South Asia went from having the highest inflation rate among developing regions to having the lowest in barely one year. In March 2013, the Consumer Price Index (CPI) of the region had increased by 7.3 percent year-on-year, compared to 1.4 percent in March 2015.
External vulnerabilities have receded, the report shows. Current account balances are strong in most countries. Capital inflows to India have increased from 1.9 to 3.4 percent of GDP, although more volatile portfolio investments account now for a greater share of the total. International reserve buffers have been built across the region, including in Pakistan which is now out of the danger zone.
However, the export performance of the region has disappointed. After a promising rebound last year, exports are now slowing down. By end 2014, export growth was close to zero across the region.
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