Economy may slow in recession: ADB

Bangladesh may face slowing economic growth in fiscal 2008-09, hurt by a slowdown in the export-based industry and a decline in remittance as the financial crisis is panning out across the world, Asian Development Bank said yesterday.
“The global financial crisis is yet to significantly affect Bangladesh. However, pressures from the global showdown are building up with signs of moderation in growth," said the Manila-based lending agency in its quarterly economic update on Bangladesh.
ADB predicts that growth may dip as much as 1.0 percentage point to fall between 5.5-6.0 percent, down from a government projection of 6.5 percent for fiscal 2008-09.
“Before the onset of the global financial crisis, a 6.5 percent growth target for fiscal 2009 had appeared attainable,” it said.
“With the financial crisis in the advanced economies unfolding and recession appearing to last longer than earlier anticipated, a growth rate in the range of 5.5-6.0 percent seems more likely.”
The prediction by ADB came about three months after the World Bank had forecast growth falling below 5 percent this fiscal year.
In its latest quarterly report, Bangladesh Bank however said economic growth is likely to hover around 6.0 percent.
ADB said agriculture might attain the targeted growth but industry and services sectors might see a fall in growth due to a drop in industrial activities and consumer spending.
There is a silver lining. A fall in commodity prices on the international market and increased domestic agricultural production may help ease inflation, it said.
Average inflation dropped to 8.9 percent in December from 9.37 in the same month a year ago.
ADB predicted a downturn in exports of the country's prime exportable garments after consumer spending slumped in the advanced economies such as the USA and European countries, the main destinations of garment and knitwear items.
Exports of upmarket frozen foods and leather products are also likely to suffer amid slowing demand on the global market.
Exports however maintained growth. In the July-December period, it grew 19.38 percent, backed by growth in readymade garment exports.
But ADB, referring to a 1.4 percent fall in exports in the October-December period, expected industrial growth to come in the range of 6.6-7.2 percent in fiscal 2009, compared with 6.9 percent in fiscal 2008.
To promote industrial activities, the lender said the prevailing shortages in power and gas need to be urgently addressed.
ADB points to a slowdown in remittance growth in the wake of layoffs and contraction of new recruitment in the developed and emerging economies. Recruiting agencies had earlier feared that the outflow of migrant workers might slump nearly 50 percent in the January-December of 2009 from 8.75 lakh a year ago.
Inflows of remittance, the second biggest foreign exchange earning source, however, remain unaffected.
But ADB warns: “Deceleration in remittance growth will dampen domestic demand for household goods.”
The financial crisis is also expected to have an adverse impact on the services sector because of effects on industries, tied to exports and a decline in domestic demand amid lower income and moderation of remittance growth.
ADB warned that the global financial meltdown might slow private-sector activities and affect government revenue collections due to a fall in import-based revenue such as custom duty.
“A major challenge to the government is to raise utilisation rate of annual development programme,” it said.