World Bank2025-10-072025-10-07978-1-4648-2291-9https://hdl.handle.net/10986/43743Growth in South Asia is on track to exceed earlier expectations and reach 6.6 percent in 2025, but is expected to slow to 5.8 percent in 2026. While this short-term outlook is subject to downside risks, over the longer term, artificial intelligence (AI) could promote growth by boosting productivity especially among those 15 percent of South Asian workers who are in jobs where AI strongly complements human labor. Such a growth dividend could be amplified by trade reforms. Carefully sequenced tariff cuts, especially in conjunction with broader free trade agreements, would encourage private investment and job creation in trade-related activities, which disproportionately employ South Asia’s younger and higher-skilled workers and have accounted for most of South Asia’s employment growth over the past decade. This could particularly benefit manufacturing, where elevated tariffs on production inputs currently diminish competitiveness. South Asia’s governments can support the adjustment of labor markets to new technologies and trade opportunities by proactively removing obstacles to workers’ reallocation to new firms, occupations, and locations. Simultaneously, they could protect vulnerable workers during this period of change by streamlining and strengthening safety nets.en-USCC BY 3.0 IGOWorld Bank10.1596/978-1-4648-2291-994725cf6-f681-42c9-acc7-63a076e0fc2b