DAWA ZANGMO | Thimphu
Bhutan’s economic growth forecast for 2026 has been revised downward as rising global energy prices and prolonged supply chain disruptions continue to weigh on the country’s economy, according to the latest regional economic outlook of the Asian Development Bank.
The revised projections show that Bhutan’s gross domestic product (GDP) is now expected to grow by 6.5 percent in 2026, down from the 6.9 percent forecast released in April.
The adjustment comes amid a broader slowdown across developing Asia and the Pacific, where growth expectations have also been lowered following escalating geopolitical tensions in the Middle East.
The latest outlook projects that developing Asia and the Pacific will grow by 4.9 percent in 2026, compared with the 5.1 percent forecast made in April. The downward revision is attributed largely to the conflict in the Middle East, which has developed into a major global energy shock.
According to the report, the conflict removed more than 10 million barrels of oil per day from global markets at its peak, triggering prolonged disruptions to international energy supplies and supply chains. The resulting increase in energy prices has raised production costs across economies in the region, affecting growth prospects.
For Bhutan, the report states that higher fuel costs have increased transportation expenses and slowed private construction activities, contributing to the lower growth forecast for 2026.
The report notes that the increase in fuel prices has affected the cost of moving goods and services throughout the country, while higher operating costs have delayed several private construction projects. These developments have reduced economic activity in the short term and contributed to the revised GDP projection.
Despite these near-term challenges, Bhutan’s medium-term outlook remains positive.
The report leaves Bhutan’s 2027 economic growth forecast unchanged at 7.2 percent, indicating expectations of a stronger recovery as global pressures ease and economic conditions improve.
The unchanged projection for 2027 reflects expectations that external shocks affecting the economy will gradually subside, allowing growth momentum to strengthen.
Alongside the revised growth outlook, inflation is also expected to remain higher than previously estimated over the next two years.
The report projects Bhutan’s inflation rate to reach 4.5 percent in 2026, higher than the earlier forecast of 3.9 percent. The inflation forecast for 2027 has also been revised upward to 4.0 percent from the 3.2 percent projected in April.
According to the report, the higher inflation forecasts are driven primarily by rising fuel prices and the country’s transition to the Goods and Services Tax (GST).
The report states that increased fuel prices continue to place upward pressure on the prices of goods and services across the economy. At the same time, the implementation of GST is expected to contribute to higher prices during the transition period, although its effects are expected to normalize gradually over time.
While the overall outlook points to continued economic expansion, the report cautions that Bhutan’s economic prospects remain vulnerable to several external risks.
Among the key downside risks identified is the possibility of renewed escalation of the Middle East conflict, which could prolong uncertainty in global energy markets and place additional pressure on fuel prices.
The report notes that continued instability in energy markets could further increase production and transportation costs, affecting businesses and economic activity.
Food price pressures also remain a concern.
According to the report, higher fertilizer costs and the potential impact of El Niño weather conditions could increase food prices, creating additional inflationary pressures and affecting households and businesses.
The report also highlights tighter global financial conditions as another potential risk to the outlook.
More restrictive global financing conditions could increase borrowing costs and limit investment, while rising uncertainty surrounding international trade policies may further affect economic activity across the region.
The report notes that these external developments continue to pose challenges for economies across developing Asia and the Pacific, including Bhutan, as they remain exposed to changes in global commodity markets and international economic conditions.
Although the country’s growth forecast for 2026 has been revised downward, Bhutan is still expected to record relatively strong economic growth compared with many economies in the region.
The report indicates that while higher fuel prices, increased transportation costs and delayed private construction projects are expected to weigh on economic performance in the near term, the country’s growth outlook for 2027 remains resilient.
Overall, the latest projections suggest that Bhutan’s economy will continue to expand despite global uncertainties, with stronger growth expected once external pressures ease and inflationary effects associated with fuel prices and the GST transition gradually normalize.
