Kathmandu, July 6 (IANS) Nepal's economy is estimated to have expanded by 3.51 per cent in the third quarter of the current fiscal year 2025-26, as the country continues to struggle to emerge from a prolonged period of low economic growth.

The projected growth for the quarter is lower than the 4.05 per cent recorded during the corresponding quarter of the previous fiscal year 2024-25, Nepal's National Statistics Office (NSO) said in a statement. Current fiscal year is ending in mid-July.

In fact, since the Covid-19 pandemic, the Himalayan nation has experienced sluggish economic growth as it has struggled to achieve a V-shaped recovery amid persistent political instability. Before the pandemic, Nepal had been recording robust economic growth, supported by post-earthquake reconstruction activities that were progressing at full pace.

According to the NSO's preliminary estimates, 16 of the country's 18 economic sectors are expected to have recorded positive growth during the review period. Public administration and defence, and manufacturing were the only sectors projected to register negative growth.

The country's manufacturing sector once again slipped into negative territory in the third quarter of the current fiscal year, despite showing signs of a slight recovery in fiscal year 2024-25 after recording negative growth for two consecutive fiscal years.

"It is a fact that Nepal's manufacturing sector has underperformed for a long time, and it is necessary to remove the bottlenecks preventing the sector from thriving," Hem Raj Regmi, Deputy Chief Statistician for the NSO, told IANS. "The US-Iran war also partially affected the manufacturing sector. Industries such as plastics and pipes were affected, while the construction materials industry also suffered as higher oil prices increased transportation costs and contributed to a slowdown in construction activities in Nepal."

In the first half of the current fiscal year 2025-26, Nepal's manufacturing industries operated at only 42.11 per cent of their installed capacity, according to a study conducted by the country's central bank.

Growth in the public administration and defence sector was also affected, as government administrative activities were largely focused on conducting the parliamentary elections held on March 5, said Regmi.

According to the NSO, the projected growth in the third quarter was primarily driven by higher electricity generation and distribution, increased deposit mobilization and credit disbursement, higher non-life insurance premium collections, and the expansion of the wholesale and retail trade sector.

"However, the overall growth rate remained moderate due to a decline in imports of construction materials, lower paddy production, and reduced domestic output of certain commodities compared to the third quarter of the previous fiscal year," the NSO said.

Among all sectors of the economy, electricity and gas recorded the highest growth rate at 24.88 per cent, followed by financial and insurance activities at 10.27 per cent and transportation and storage at 7.83 per cent. The agriculture sector, the largest contributor to Nepal's economy, is estimated to have grown by 1.58 per cent, down from 2.84 per cent in the third quarter of the previous fiscal year.

Nepal recorded a decline in paddy production, the largest contributor to agricultural output, during the review period. However, modest growth in livestock and poultry, vegetables, fruits, and forestry products helped support the sector's overall gross value added.

Likewise, the wholesale and retail trade sector, the second-largest contributor to the economy, is estimated to have expanded by 5.25 per cent, mainly due to increased domestic production and imports of tradable goods.

--IANS

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