In a promising sign for the South Asian kingdom, Bhutan’s economy is forecast to surge by 8.5 percent this year before settling to a steady 6 percent in 2026. The projection, released in the latest Asian Development Outlook, signals a period of strong economic activity driven by sweeping growth across multiple sectors.
Industrial Surge Powered by Hydroelectric Projects
At the forefront of this growth is the industrial sector, which is expected to achieve an extraordinary expansion of nearly 18.6 percent. This impressive leap is largely attributed to a significant boost in hydroelectric power generation and the acceleration of related infrastructure projects. Officials point to the recent completion of major projects, such as the delayed commissioning of the Punatsangchhu-II hydropower facility, alongside the kick-off of the Kholongchhu hydropower plant. The latter, a critical component of a sweeping 5,000-megawatt initiative in partnership with India’s Tata Group, is set to propel the country’s industrial output to new heights.
“Completing these key infrastructure milestones is not just about powering the nation; it’s about laying the groundwork for sustainable industrial growth,” noted Sonam Lhendup, the Asian Development Bank’s economics officer at the Bhutan Resident Mission.
Revitalization in the Service and Agriculture Sectors
The service sector is expected to ride a wave of recovery with a projected expansion of 4.9 percent this year. This growth is closely linked to a rebound in international tourism—a sector that has faced challenges in recent times. Double-digit gains in transport, storage, and hospitality segments are anticipated as more tourists rediscover Bhutan’s scenic landscapes and rich cultural heritage.
Agriculture, while traditionally a backbone of Bhutan’s economy, is also set to benefit from recent policy shifts. With the government’s decision to permit timber exports for the first time in over two decades, forestry and logging activities are expected to spur a 4.3 percent increase in agricultural output in 2025. However, growth in both services and agriculture may decelerate by 2026 as the boost from tourism and forestry activities begins to wane.
Domestic Demand and Investment: Catalysts for Continued Growth
Domestic consumption is emerging as another key pillar supporting Bhutan’s economic trajectory. Aggregate consumption is projected to climb by over 5 percent in 2025, although the pace is expected to ease slightly to 4.2 percent in the following year. Meanwhile, private consumption is buoyed by steady growth in credit availability and remittance inflows, with forecasts pointing to a 5.3 percent rise.
Investment trends also paint an optimistic picture. After a slight contraction in 2024, fixed investment is poised for a robust rebound of 9.8 percent in 2025. This upswing is driven by renewed construction activities and the commencement of new hydropower projects as part of the nation’s 13th Plan. Increased private sector investments in buildings, machinery, and equipment are expected to further solidify this growth trend.
A Balancing Act: Navigating Inflation and Shifting Demand
Despite the positive economic outlook, policymakers are keeping a close eye on inflationary pressures. Inflation is forecast to tick up to 3.4 percent in 2025 and marginally to 3.5 percent in 2026, following a more moderate 2.8 percent in 2024. Analysts suggest that the recent surge in food prices—evident in the final quarter of 2024—will likely persist into the first half of this year. However, easing fuel costs and an anticipated slowdown in demand for housing and utilities, partially driven by expected outmigration, are expected to help temper overall price increases.
Looking Ahead
Bhutan’s economic narrative is evolving rapidly, with broad-based gains in industry, services, and agriculture setting the stage for a period of sustained prosperity. The strategic emphasis on infrastructure development and the ongoing resurgence in tourism are key drivers that could redefine the kingdom’s economic landscape over the coming years.
As the government and private sector work hand-in-hand to harness these growth opportunities, Bhutan stands at the cusp of a transformative period marked by robust domestic demand and significant investment in its future.
