The Asian Development Bank (ADB) has raised Pakistan’s GDP growth forecast for Fiscal Year 2025 to 3%, up from 2.7%, citing stronger economic performance in the final quarter of the previous year and a faster-than-expected recovery in industry.

The upgraded projections were released in the Asian Development Outlook (ADO) report on Wednesday.

Pakistan’s economy expanded 5.7% in the fourth quarter of FY2025, supported by a sharp rise in large-scale manufacturing output.

ADB said growth momentum had held firm despite the mid-year floods in June, with private-sector credit, investment and consumption contributing to the improvement.

The report notes that the broader business environment has become more favourable, and the economic outlook for FY2026 also shows “strong improvement.” Industrial recovery and stabilising food prices are expected to support continued growth.

Inflation eased to 4.7% in the first four months of FY2026, down from 8.7% a year earlier. Food prices, which surged after the floods, have begun to stabilise.

ADB said the upgrade reflects a less severe-than-anticipated impact from the floods and steady demand in key sectors, though it cautioned that external demand remains weak and uncertainties in global trade persist.

South Asia and developing Asia also see a stronger outlook

For South Asia, ADB raised the 2025 growth projection to 6.5%, from 5.9%, while keeping the 2026 forecast unchanged at 6.0%.

Inflation across developing Asia is expected to fall further, with a revised 2025 estimate of 1.6%. The 2026 forecast remains at 2.1%.

The bank said stronger-than-expected exports, new trade agreements — including with the United States — and resilient demand for semiconductors and technology goods have bolstered the region’s outlook.

Developing Asia’s economy is now expected to grow 5.1% this year, up from the earlier 4.8% forecast, with 2026 growth revised to 4.6%.