April 17: Possible protectionism in advanced economies should not deter export-oriented growth in South Asia, a region that could even benefit from the backlash against globalization, a new World Bank report said on April 16. The report also confirms that South Asia remains the fastest-growing region in the world, gradually widening its lead relative to East Asia. Regional GDP growth is expected to rise from 6.7 percent in 2016 to 6.8 percent in 2017, and 7.1 percent in 2018.

The just released edition of the twice-a-year South Asia Economic Focus explores whether South Asian countries should worry about mounting protectionist pressures. This report, Globalization Backlash, claims that global integration has been good for economic development and poverty reduction, but finds that the region would be resilient to higher trade barriers in advanced economies. It would even stand to gain if selective protectionism resulted in trade diversion away from established suppliers. South Asian economies also stand to gain from the observed recovery in advanced economies, which are their largest export markets.

"Simulations on the impact of hypothetical new trade barriers show that South Asia is not only resilient to a potential rise in protectionism but could possibly even gain from it in some circumstances,” said Annette Dixon, the World Bank South Asia Region Vice President. “Advanced economies are recovering and could see faster growth that will likely increase demand for South Asian products. The region should seize this opportunity to diversify its exports and enhance its supply response. This could create a substantial number of jobs for new entrants to the labor force.”

Given its weight in the region, India sets the pace for South Asia as a whole. Its GDP growth is expected to accelerate to 7.2 percent in 2018, after expanding by a slightly lower than expected 6.8 percent in 2016, with a temporary disruption from the withdrawal of large denomination bank notes. Based on tangible improvements in security, Pakistan continues its upward trend and growth is expected to accelerate to over 5 percent this year.  Nepal and Maldives are bouncing back from economic shocks. In Bangladesh industrial production reached a record-high recently and growth remains strong.

Analysis of different hypothetical trade scenarios finds that South Asia stands to benefit from the stall of large regional trade agreements such as the Trans-Pacific Partnership (TPP). It would also gain in the hypothetical scenario of greater protectionism against major exporting countries such as China and Mexico. The research finds that South Asian growth is highly responsive to higher growth in advanced economies, which could offset potential losses from changes in trade policy.

“To make the most of this export opportunity, countries in the region should continue to focus on polices that promote economic growth,” said World Bank South Asia Region Chief Economist Martin Rama. “A survey of South Asian experts conducted for this report reveals a strong consensus on the need to promote human capital accumulation, investments in infrastructure, and a more business-friendly environment.”

According to the report, Nepal is seeing a broad economic recovery after a number of setbacks including the earthquakes of 2015. Its economic activity is recovering with growth expected to rebound to 6.0 percent in 2017 on the back of increased agriculture output, increased availability of electricity, and greater investment as the earthquake reconstruction gathers speed, compared 0.6 percent growth in 2016, reads the report.