Weak domestic demand to slow GDP growth: ADB

The Asian Development Bank expects Bangladesh's gross domestic product to grow at 6.9 percent in fiscal 2018, down from the preliminary official estimate of 7.2 percent, due to weak domestic demand.

The lender kept the growth estimate unchanged from the Asian Development Outlook of 2017. Private consumption is likely to stay at the current level as income growth slows in agriculture and wage employment and remittances continue to fall, it said in the ADO 2017 Update.

Private investment will rise moderately with prevailing political stability and the authorities delivering economic reform and better infrastructure.

The decline in remittances will slow and is unlikely to reverse in the near term, it said.

"Some pickup in export growth is expected, and there is potential for an upside surprise if consumer confidence improves."

The donor thinks the country's agriculture growth is expected to be lower at 2.6 percent in fiscal 2017-18 because of a higher base effect and prolonged flooding that hindered planting for the monsoon crop.

Industry growth will moderate to 10.2 percent as falling remittances restrain domestic demand.  Services growth will ease to 6 percent because of slower growth in agriculture and industry.

Inflation is expected to be higher at 6 percent this fiscal year but below the 6.3 percent projected in the ADO 2017.

While average inflation softened further to 5.4 percent last fiscal year from 5.9 percent the previous year, but it is below the ADO 2017 projection of 6.1 percent with lower global commodity prices and slower growth in money supply.

Crops lost to the floods at the turn of the fiscal year may put further pressure on rice prices, to be partly offset by expected higher imports. Gas prices were raised in March 2017 with little immediate impact on inflation.

However, further increases seem likely as prices remain below international levels, and because revenue will be needed to pay for the expected operation of a liquefied natural gas gasification terminal in 2018 and the planned awarding of gas exploration contracts.  A likely rise in electricity prices and taka depreciation may add to price pressures, according to the donor.

Nevertheless, expected moderation in global food prices and weak domestic demand should keep inflation in check.

The country's exports are projected to return to a higher growth and rise 6 percent in fiscal 2018.

The projection is underpinned by favourable growth in major markets, a shift in market share towards emerging countries that are projected to see faster growth and a reduction in the corporate tax from 20 percent to 12 percent for the garment industry.

The expanded export incentives to cover new items and the government efforts to improve transport logistics, cargo handling at ports and customs procedures have also contributed to set a higher target.

Exports grew only 1.7 percent to $34 billion last fiscal year, well below the 8.9 percent expansion a year earlier and the ADO 2017 forecast of 6 percent.

The import bill is expected to be higher by 10 percent. Aided by duty reduction from 28 percent to 2 percent for rice, food grain imports are set to pick up to offset shortfalls in domestic production.

Petroleum imports will rise to run rental power plants as demand for electricity increases. Imports of machinery and raw materials for infrastructure and LNG projects will increase the import bill.

Remittance inflows will decline again this fiscal year, although at a much slower rate of 3 percent as fiscal consolidation moderates in Middle East oil producers.

A higher trade deficit is expected to push the current account deficit to 1.5 percent of GDP in 2017-18.