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Growth is strong in South Asia, but not driven by exports or manufacturing, the bank said in its South Asia ‘Economic Focus’.
"Domestic consumption has been the main contributor to economic growth across the region, with exports or investment being remarkably subdued," the report said.
In India and Sri Lanka, the contribution of investment is projected to be relatively more important in 2018.
But even there, the World Bank said, the main driver remains domestic consumption.
"In both countries exports contribute relatively little to growth," it said.
The World Bank’s Spring 2017 edition of the report had argued that South Asia’s benefits from trade diversion may be small but that they increase with the elasticity of domestic supply and the extent of export diversification.
It is not clear what contribution the export of services is doing to the economy. Services which includes, information technology, tourism and even exports of labour. Capital will generally flow to where returns are high, and access to resources including workers is easier.
To benefit from the opportunities offered by strong import demand in the US and Europe, South Asian countries need to improve logistics, reduce red tape, and enhance competitiveness, it said.
"Unfortunately,” the latest report said, “some of the policy measures recently adopted in the region to address widening current account deficits go in the opposite direction.
“Regulatory duties have been increased in Pakistan; import tariffs on vehicles have been raised in Sri Lanka; and India did the same on 19 products worth 13 billion dollars in imports.”
Industrial production in South Asia is holding well, but it grows slower than GDP in most countries.
South Asia’s industrial production grew by only 5.4 percent in the second quarter of 2018, slightly lower than a quarter before.
In India it grew by 5 percent, in Pakistan by 4.5 percent, and in Sri Lanka by only 0.6 percent, the report said.
(COLOMBO, 19 Octber, 2018)
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