KATHMANDU: The National Statistics Office (NSO) recently released its preliminary quarterly report for the second quarter (Q2) of the fiscal year 2025/26, describing an economy in a steady recovery phase.

Nepal recorded a 4.05 per cent year-on-year growth in GDP at basic prices during the period from mid-October 2025 to mid-January 2026.

This performance marks a notable improvement over the 3.8 per cent growth recorded in the same quarter of the previous fiscal year.

While the headline figure is positive, it reflects a complex interplay of high-performing services and structural challenges in production that have kept the overall growth rate at a “modest” level.

What is the specific growth performance for this quarter and how does it compare to previous years?

Nepal’s economy achieved a 4.05 per cent growth rate in the second quarter of FY 2025/26 when compared to the same period in the previous fiscal year.

This figure represents the seasonally unadjusted growth at basic prices and indicates a strengthening trend compared to the 3.8 per cent growth seen during the second quarter of the last fiscal year.

The NSO release on Monday, April 6, 2026, suggests that while the economy is not yet “booming,” it is moving toward a more stable growth trajectory than it was twelve months ago. This incremental improvement is significant as it shows the economy is gradually overcoming the stagnation of previous cycles.

Analysts point out that maintaining a growth rate above 4 per cent is a positive psychological threshold for investors, signaling that the post-pandemic and post-liquidity-crisis recovery is finally gaining some durable traction across the national landscape.

How have the growth estimates for the first quarter of this year changed?

An important highlight of this new report is the revision of past data, which provides a more accurate picture of the current fiscal year’s start.

In mid-January 2026, the NSO had initially estimated that the economy grew by 3.02 per cent year-on-year in the first quarter (Q1). However, with more complete and verified data now available, those figures have been revised upward to 3.24 per cent.

This upward revision is common in national accounting as late-arriving data from remote districts or specific industrial surveys are integrated.

It indicates that the start of the 2025/26 fiscal year was stronger than originally believed, providing a more solid foundation for the 4.05 per cent growth seen in the second quarter.

Such revisions suggest that the underlying economic momentum was under-reported initially, giving a more optimistic outlook for the cumulative annual growth target.

Which sector emerged as the absolute leader in economic expansion?

The most significant driver of growth by a wide margin is the electricity, gas, steam, and air-conditioning supply sector, which skyrocketed by 22.74 per cent.

This massive leap is largely attributed to the successful integration of new hydroelectric projects and improved energy distribution across the country.

With Nepal’s total installed capacity now crossing significant milestones, the energy sector has become the primary engine for national GDP. This growth is not just about production but also reflects increased domestic consumption and the burgeoning export of electricity to neighboring markets.

This sector’s performance was the primary reason the overall GDP remained above the 4 per cent mark, effectively acting as a massive buffer against the slower growth seen in traditional sectors like agriculture.

It represents a structural shift in Nepal’s economy toward a more energy-reliant industrial base.

How did the financial and insurance sectors contribute to this momentum?

Following the energy sector, financial and insurance activities recorded a robust 12.51 per cent increase. This growth was fueled by higher deposit mobilization and a healthier flow of credit within the banking system compared to the previous year’s “credit crunch” environment.

Banks and financial institutions have seen a steady rise in deposits, reaching record levels, which has allowed for more aggressive lending in productive sectors.

Furthermore, a rise in non-life insurance premium collections contributed to the sector’s value-added growth, indicating an increasing trend of risk management among businesses and individuals. This surge suggests that liquidity in the market has improved significantly, allowing for more financial movement and investment.

The double-digit growth in this sector is a clear indicator that the financial “pipes” of the economy are clear and functioning more efficiently than in recent quarters.

Why was the performance of the agricultural sector considered “relatively weak”?

Agriculture, forestry, and fishing remain the largest contributors to the Nepali economy, yet the sector grew by only 2.21 per cent this quarter. The NSO attributed this underwhelming performance primarily to a drop in paddy production, which is the nation’s most vital staple crop.

Paddy production was hampered by erratic monsoon patterns and localized droughts in key agricultural hubs. While the sector managed to stay positive, it relied heavily on gains in livestock-oriented products, fruit and vegetable cultivation, and forest products to sustain its overall value addition.

The decline in rice harvests continues to be a primary reason why Nepal’s overall growth remains “moderate” rather than “high,” as a large portion of the population depends on this sector for income.

This disparity between high-tech energy growth and climate-dependent agricultural growth remains a major structural challenge for the country’s economic planners.

How is the “Wholesale and Retail Trade” sector performing as a major GDP contributor?

The wholesale and retail trade sector, which holds the second-largest share in the national GDP, expanded by 4.11 per cent.

This growth was supported by a dual increase in the availability of domestically produced goods and a rise in the import of trade-related items. Because this sector serves as a vital bridge between producers and consumers, its steady rise suggests that consumer demand remained resilient during the mid-October to mid-January window, which includes the tail end of the major festival season.

The increase in trade-related imports, while often a concern for the trade deficit, actually signals that businesses are restocking and expecting continued sales.

The 4.11 per cent growth indicates that the “real economy” at the street level is active, and the flow of goods through the country’s markets is maintaining a steady pace despite inflationary pressures on household budgets.

What specific “tempering factors” prevented a higher overall growth rate?

Despite positive growth across all 18 industrial sectors year-on-year, the NSO noted several factors that “tempered” or slowed down the economy.

A significant decline in the import of construction materials signaled a lack of momentum in physical infrastructure development and a sluggish real estate market. This suggests that large-scale government projects and private housing starts are not moving as quickly as anticipated.

Additionally, a reduction in the domestic output of certain manufactured goods and the lower paddy production mentioned earlier acted as significant drags. These bottlenecks in construction and manufacturing are the main reasons the growth didn’t climb closer to the 5 or 6 per cent mark.

When the construction sector—a massive employer and driver of demand for cement and steel—slows down, it has a cooling effect that spreads across multiple related industries, limiting the overall economic potential.

Which sectors saw the lowest growth rates during this period?

At the lower end of the growth spectrum, several essential service sectors showed very limited expansion, reflecting a lack of new investment or expansion in public utilities.

Water supply, sewerage, waste management, and remediation activities grew by a mere 0.55 per cent, showing that these utilities are barely keeping pace with population growth.

Public administration and defense, including compulsory social security, expanded by only 1.11 per cent, likely due to government austerity measures and limited hiring in the public sector.

The education sector followed closely with a 1.16 per cent growth rate. These figures indicate that government-led services and public infrastructure utilities are currently growing at a much slower pace than the private-led energy and financial sectors.

This “slow-growth” group highlights areas where the state may need to increase capital expenditure to ensure that public services don’t become a bottleneck for future economic development.

Did any sectors actually shrink when looking at short-term data?

Yes, while all sectors grew when compared to the same quarter last year, the quarter-on-quarter seasonally adjusted data reveals some “contractions” or shrinking areas.

This provides a more immediate look at the economy’s health. Between the first and second quarters of the current year, the mining and quarrying sector declined by 0.8 per cent, and the construction sector shrank by 0.6 per cent. These contractions are particularly concerning because they represent the “physical” side of the economy.

The decline in mining is often linked to the decline in construction, as demand for sand, stone, and aggregates falls. These contractions highlight the ongoing struggle within the industrial and physical development sectors of Nepal, which are currently moving backward even as the rest of the economy—driven by services and energy—moves forward.

It suggests a “K-shaped” recovery within the industry where energy thrives but building and extraction suffer.

What does the “Seasonally Adjusted” data tell us about the current momentum?

On a quarter-on-quarter basis, the seasonally adjusted GDP rose by 2.04 per cent, which is an essential metric for understanding the current direction of the economy without the “noise” of seasonal harvest cycles or festivals.

Among the 16 sectors that expanded in this short-term view, transportation and storage posted the highest growth at 6.2 per cent, followed by human health and social work activities at 3.98 per cent.

High growth in transportation is usually a precursor to broader economic activity, as it means more goods and people are moving across the country.

The growth in health services also indicates increased public and private spending in the social sector. This data suggests that the economy has genuine underlying momentum.

If the government can successfully pivot and address the shrinking construction and mining sectors, the 2.04 per cent quarterly increase provides a very stable foundation for hitting annual growth targets.