• Wednesday, October 22, 2014

Political shadows dog economy: IMF

GDP growth to slip below 6pc this fiscal year; Bangladesh stands to gain from recovery in advanced economies

Arun Devnath, from Washington
Olivier Blanchard, IMF's chief economist, speaks at a press briefing. Photo: AFP
Olivier Blanchard, IMF's chief economist, speaks at a press briefing. Photo: AFP

Domestic demand in Bangladesh is expected to recover in 2014 as activity is normalising after a year of political unrest, but economic growth will go below 6 percent this fiscal year in lingering fallout, the International Monetary Fund said yesterday.
Bangladesh fits the pattern for much of developing Asia as more idiosyncratic risks stemming from domestic political tensions and uncertainties remain in several countries.
For Asia as a whole, growth is expected to accelerate only modestly, from 5.2 percent in 2013 to about 5.5 percent in both 2014 and 2015, the IMF said in the World Economic Outlook report released in Washington.
The IMF said global recovery "has broadly strengthened" and will "improve further" in 2014, but it trimmed its growth forecast amid a sharp rise in Japan's sales tax and a slowdown in emerging markets.
An accelerating US recovery will help the world economy grow 3.6 percent this year, the IMF said, up from 3 percent in 2013 but down slightly from its 3.7 percent projection in January.

Global growth will pick up to a pace of 3.9 percent in 2015, the fund said ahead of the spring meetings of the IMF and World Bank in Washington this week.
The IMF's growth forecast for the US was unchanged at 2.8 percent, highest among advanced economies, it said.
A major impulse to global growth has come from the United States, the IMF said in its report, adding that US growth will pick up to 3 percent next year.
"Put simply, the recovery is strengthening and there is a substantial improvement from last year," Olivier Blanchard, the IMF's chief economist, said at a media briefing at the lender's headquarters.
Faster recovery depends on domestic demand and exports, and Blanchard warned: "Acute risks have decreased, but risks have not disappeared."
"The recovery which was starting to take hold in October is becoming not only stronger, but also broader," said Blanchard. "The various brakes which limited growth are being slowly loosened."
"Although we are far short of a full recovery, the normalisation of monetary policy--both conventional and unconventional--is now on the agenda."
Advanced European economies are expected to resume growth in 2014, as the euro area has finally emerged from recession. Economic activity shrank in 2013, but growth has been positive since the second quarter after a long period of output decline. The turnaround is attributable, in part, to less fiscal drag and some impetus from private domestic demand for the first time since 2010, according to the report.
With the global recovery taking hold, led by advanced economies, there are hopes for greater exports from the developing countries. Bangladesh is no exception, it added.
"The prospects for slightly higher growth in the US and EU is good for our exports, as these are our largest markets, though there are other factors, which are the main drivers of export performance and certainly overall economic growth in Bangladesh. These include overall
domestic stability, progress in developing trade related infrastructure, entering and maintaining preferential trade agreements and managing the new compliance regime," Hassan Zaman, chief economist at Bangladesh Bank, said by email.
OUTLOOK FOR ASIA
In Asia, domestic demand will continue to be supported by strong labour markets and still-buoyant credit growth.
Policies are expected to remain accommodative, although in a few cases such as India and Indonesia, interest rate hikes on the one hand will attenuate vulnerabilities, but on the other hand could weigh on growth.
In Japan, fiscal consolidation will be a headwind. Inflation is expected to increase slightly, albeit remaining generally low across the region, as output gaps close. The main exceptions are India and Indonesia, whose high inflation rates should continue to moderate further, the IMF said.
India's growth is expected to recover from 4.4 percent in 2013 to 5.4 percent in 2014, supported by slightly stronger global growth, improving export competitiveness, and implementation of recently approved investment projects.
A pickup in exports in recent months and measures to curb gold imports contributed to lowering the current account deficit.
Policy measures to bolster capital flows have further helped reduce external vulnerabilities. Overall growth is expected to firm up on policies supporting investment and a confidence boost from recent policy actions, but will remain below trend. Consumer price inflation is expected to remain an important challenge, but should continue to move onto a downward trajectory.
In the emerging market and developing economies, growth picked up only modestly in the second half of 2013--from 4.6 percent in the first half of 2013 to 5.2 percent in the second- although they continue to contribute much of global growth.
A worrying development is the downgrade of growth rates in a few large emerging market economies such as Brazil, Russia, South Africa, Turkey, due to domestic policy weaknesses, tighter domestic and external financial conditions, or investment and supply constraints.
"Downside risks to global growth remain. Chief among them is a renewed increase in financial market volatility, especially in emerging market economies," the IMF said.
If this risk materialises, capital inflows to emerging markets and developing economies will likely decline, and growth in these economies will be lower, it said.
Concurring with the IMF forecasts, Zaman said: "One cautionary point from this report is the slowdown in growth in some new markets for our exports, such as Brazil, Turkey and Russia though perhaps some of our lower end products might even benefit from this."
In advanced economies, downside risks to activity stem mainly from prospects of low inflation and the possibility of protracted stagnation, especially in the euro area and Japan, the IMF said.
Other downside risks include adjustment fatigue and insufficient policy action in a still financially fragmented euro area and risks related to the exit from unconventional monetary policy.
On the upside, the stronger-than-expected growth momentum during the second half of 2013 could buoy confidence in Germany, the UK and the US, according to the IMF report.
As exports recovered thanks to stronger demand from advanced economies, activity in Asia picked up in the second half of 2013.
With export demand still robust, Bangladesh stands to gain from the recovery in the advanced economies.

Published: 12:00 am Wednesday, April 09, 2014

Last modified: 10:02 pm Wednesday, April 09, 2014

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