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South Asia

GDP growth in South Asia slowed to 7.1 percent in 2011 from 8.6 percent in 2010, as headwinds from the Euro Area crisis caused a deceleration in exports and a reversal of portfolio capital. Growth in India was particularly weak due to monetary policy tightening, stalled reforms, electricity shortages, which, along with fiscal and inflation concerns, cut into investment activity. Relatively resilient remittances and good agricultural harvests have supported consumption demand in the region. Sri Lanka’s growth further benefitted from reconstruction spending. Regional GDP growth is expected to slow further to 6.4 percent in 2012, reflecting weak carry over from the sharp deceleration in the second half of 2011 and the fragile external environment. Fiscal deficits, entrenched inflation, and electricity shortages continue to weigh negatively on investment activity and are expected to limit regional growth to a relatively modest 6.6 percent annual average during 2013 and 2014 .