Tourism to support expansion as higher fuel costs, inflation and El Niño pose risks
Bhutan’s economy is projected to accelerate to 7.2 percent growth in 2027, according to the latest Asian Development Bank (ADB) outlook, as tourism and continued economic activity support expansion despite rising energy costs, inflation and growing external risks.
The ADB’s September 2026 Asian Development Outlook retained its 2027 growth forecast for Bhutan at 7.2 percent and its 2026 forecast at 6.5 percent. The 2027 projection puts Bhutan’s expected growth above the ADB’s 6.5 percent forecast for South Asia, although the regional outlook was revised down from 6.7 percent.
For Bhutan, the ADB expects regional tourism to help sustain growth in 2026, partly offsetting the drag on construction from higher fuel costs. The assessment comes as Bhutan’s latest quarterly figures show stronger momentum in industry.
The National Statistics Bureau (NSB) estimated that the economy grew by 6.46 percent in the second quarter of 2026, up from 5.55 percent in the first quarter.
Industry was the strongest-growing major sector, expanding by 10.31 percent, largely driven by electricity. Services grew by 5.56 percent, while agriculture contracted by 0.61 percent.
The quarterly performance and the ADB’s medium-term forecast point to an economy increasingly supported by industry and services, even as agriculture remains vulnerable to weather and other supply-side pressures. The more optimistic growth outlook comes alongside a worsening inflation picture. The ADB has revised up Bhutan’s inflation forecast for 2026 to 6.5 percent, from its previous projection, saying the introduction of GST and excise tax increases has been more inflationary than initially expected. Higher fuel and transport costs, including the pass-through from the Middle East conflict, have added to price pressures.
The bank has also raised its 2027 inflation forecast moderately, although it expects the inflationary impact of the tax changes to fade over time.
This creates a challenge for the economy: higher GDP growth does not necessarily translate into lower costs for households and businesses.
Higher fuel and transport prices can raise the cost of moving goods, operating businesses and undertaking construction, while also putting pressure on household purchasing power.
The ADB has identified a very strong El Niño as another major risk to the regional outlook. The weather phenomenon is expected to persist through the first quarter of 2027 and could reduce agricultural production and hydropower generation while pushing up food and energy prices. The risk is particularly relevant for Bhutan given the importance of agriculture and hydropower to the economy. A stronger-than-expected El Niño could affect food production and water availability, while lower hydropower generation could increase dependence on other energy sources and add to price pressures. The ADB also warns that prolonged disruptions in global energy markets could keep fuel prices elevated. Further escalation of geopolitical conflicts could disrupt global supplies of energy and other commodities.
Bhutan’s projected 7.2 percent growth in 2027 comes against a more subdued regional outlook. The ADB projects South Asia to grow by 6.5 percent in 2027, down from its previous 6.7 percent forecast. Developing Asia and the Pacific is projected to grow by 5.1 percent, following 5.0 percent growth in 2026. The regional outlook remains exposed to geopolitical tensions, higher energy prices, extreme weather and tighter financial conditions.
For Bhutan, the ADB’s forecast suggests that domestic and tourism-related activity can continue to support growth despite these external headwinds.
The contrast between the growth and inflation outlook will be important for Bhutan. The ADB expects the economy to grow by 6.5 percent in 2026 before accelerating to 7.2 percent in 2027, while simultaneously warning of elevated inflation and external shocks.
The latest ADB outlook consequently presents Bhutan with a stronger growth trajectory but a more demanding operating environment: the economy is expected to accelerate next year, but the path to that growth remains exposed to inflation, energy markets, geopolitical disruptions and climate-related shocks.
Sherab Dorji, Thimphu
