Nepal’s economic growth is forecasted to decrease significantly in the current fiscal year 2025–26, as per the World Bank. The country’s real GDP growth is anticipated to moderate to 2.3 percent, with the services sector being the most affected due to a decline in tourist arrivals during the peak season of March–May. This slowdown is attributed to the aftermath of the US-Iran war and the Gen Z movement from last year.
The drop in foreign tourist arrivals in Nepal during March, especially from Europe and the Americas, has been notable. The conflict in West Asia has led to a 15-day ceasefire between the US and Iran, impacting transit hubs that are commonly used by tourists. This decline in tourism is expected to have adverse effects on key service industries like accommodation, food services, and transportation.
Furthermore, rising fuel prices and moderating remittance growth are likely to weaken household purchasing power in Nepal. This is expected to dampen domestic trade and slow down activity in the real estate sector. Industrial growth, especially in non-hydropower construction, is also projected to soften due to higher input costs and declining investor confidence, affecting new investments and ongoing projects.
The conflict is estimated to push around 17,267 additional Nepalis below the poverty line in fiscal year 2025–26, according to the World Bank report. Poverty levels in Nepal, measured at $4.2 per day threshold, are expected to slightly increase to 6.6 percent under the conflict scenario, compared to 6.5 percent in the pre-conflict baseline. The World Bank emphasizes that while the rise seems marginal at an aggregate level, it signifies a significant increase in the number of people falling into poverty.
