Sri Lanka’s economic recovery is expected to lose momentum in 2026 as global trade tensions, tariff shocks and lingering domestic weaknesses weigh on growth, the World Bank said in its latest Global Economic Prospects report.
After expanding by a robust 4.6% in 2025, the island nation’s gross domestic product is forecast to slow to 3.5% in 2026 and ease further to 3.1% in 2027, according to the report.
The outlook underscores the fragility of Sri Lanka’s recovery following its worst economic crisis in decades.
While South Asia remains one of the world’s fastest-growing regions, with average growth projected at 6.2% in 2026, Sri Lanka is expected to trail behind regional peers.
India’s economy is forecast to grow by 6.5%, while Bangladesh is projected to expand by 4.6%.
The World Bank warned that Sri Lanka faces a significant jobs challenge, particularly for young people, as structural bottlenecks continue to constrain employment opportunities. With an estimated 1.2 billion young people expected to enter the labor force across emerging markets by 2035, the report said Sri Lanka must accelerate reforms to attract private investment, strengthen digital infrastructure and lift productivity.
Despite the headwinds, the report noted some positive signs. Strong revenue performance is expected to help narrow fiscal deficits and reduce public debt, signaling gradual progress toward fiscal stability.
Sri Lanka is also projected to record current account surpluses, supported by lower global oil prices and steady remittance inflows from Gulf Cooperation Council countries, where economic activity remains resilient.
Risks to the outlook, however, remain elevated. The World Bank cautioned that further increases in tariffs or the removal of trade exemptions — particularly in electronics and services — could weaken export demand and slow economic activity.
Sri Lanka’s relatively high exposure to U.S. markets leaves it more vulnerable than many of its regional peers to such shocks.
On the upside, the report said a resolution of global trade disputes or a partial rollback of U.S. tariffs could boost exports and restore investor confidence, providing a lift to the economy.
Globally, economic growth is forecast to edge down to 2.6% in 2026, with trade expansion slowing to 2.2% from 3.4% last year.
Commodity prices are expected to fall by about 7%, with oil prices potentially declining to around $60 a barrel, offering some relief to energy importers such as Sri Lanka.
However, the World Bank warned that risks remain tilted to the downside, including escalating trade frictions, tighter financial conditions and climate-related shocks.
(Source -The Leader)
