Economy to slow this fiscal year

Bangladesh's economy is likely to grow at 6.5 per cent by the end of the current fiscal year, down from 7.2 per cent in fiscal year 2021-22, according to Fitch Solutions early this week.

The growth will be constrained by weakening external demand, elevated energy prices, and inflation levels, as well as tightening global monetary conditions, it said.

However, sustained normalisation of economic activity will help offset some headwinds to the economy, it added.

"We at Fitch Solutions now expect Bangladesh's economy to expand by just 6.5 per cent in FY2022-23 from 7.2 per cent in FY2021-22," said its latest report on Bangladesh released on November 25.

"Our forecast is considerably below official projections of 7.5 per cent as the economy is grappling with headwinds stemming from elevated inflation and energy prices, tightening monetary conditions, and a weakening global economic backdrop," it said.

"Demand would soften on the back of elevated inflation and weak remittances inflows."

Nevertheless, the sustained easing of Covid-19 restrictions will remain supportive of growth and thus limiting the extent of the economic slowdown, it added.

The Fitch also sees three major headwinds facing Bangladesh's economy over the coming quarters.

The first is that domestic demand would soften on the back of elevated inflation and weak remittances inflows.

The latest data showed consumer prices rising by 8.9 per cent year-on-year as of October 2022 while acknowledging that inflation has eased from its peak of 9.5 per cent, although it remains above the Bangladesh Bank's (BB) target of 5.6 per cent.

Secondly, the effects of the surge of energy and commodity prices will continue feeding into the economy, leading to further inflationary pressures.

Furthermore, a recent 20 per cent hike in bulk electricity prices on September 22 will likely be passed onto consumers, contributing to broader price pressures.

Given Bangladesh's relatively low levels of per capita incomes, elevated energy prices will have an outsized impact on household purchasing power and weigh heavily on private consumption, said Fitch Ratings.

Additionally, signs of a slowdown in remittance inflows have also become apparent, with the latest data showing a contraction of 10.8 per cent year-on-year, it said.

Given that remittances account for a large share of the economy (6 per cent of the GDP), a sharp decline could point to early signs of a looming economic slowdown, it added.

This can be partially attributed to elevated inflationary conditions elsewhere as well as slowing global growth, it said.

Finally, a global economic slowdown will dampen demand for Bangladesh's exports, it added.

"We think that the US and Eurozone will likely fall into a recession next year. If we are right, trading activity in Bangladesh would decelerate sharply, especially given that they represent more than half of Bangladesh's total exports," Fitch Ratings also said.

Factoring in the impact of global tightening conditions worldwide, there is also likely to be little in the way of external support from Bangladesh's other trading partners, it said.

As a whole, the global team forecast that the world economy will slow to 2 per cent in 2023, which is more downbeat than the International Monetary Fund's forecast of 2.7 per cent, it said.