Understanding the GDP growth rate | The Daily Star
12:00 AM, June 08, 2014 / LAST MODIFIED: 01:53 AM, March 08, 2015

Understanding the GDP growth rate

Understanding the GDP growth rate

I have always had a hard time understanding why the GDP Growth rate of Bangladesh had so little volatility over the last decade or so. Not only was it growing at a decent 6% or so but the fluctuation of the growth rate has also been very low. While I strongly believe that 6% growth is not very hard to achieve given our favourable demographics, low per capita income, low wages etc., I do feel that the numbers do not adequately reflect the business cycle fluctuations.
Let us take the case of FY 2013-14. According to our statistical agency, the GDP growth for the present fiscal year ending June 2014 would be 6.2%. This comes as a surprise as the GDP growth rate in the preceding year was 6.0%. The present fiscal year of 2013-14 in contrast faced political problems and low business confidence and consumer confidence, and if one were to make a rough guess we would have expected it to be below 6.0%.
So we are left with no other option but to cross check with other economic indicators. Let us go through the big three indicators.

Banking sector credit growth
Credit growth in the banking sector has been much lower at around 10-11%, which is significantly lower than the mid-term average of around 20%. In the first quarter (Jan-March), most banks reported negative credit growth. This clearly indicates that private investment has been relatively weak.

Non-food inflation rate
Another important indicator for understanding the underlying aggregate demand in the economy is inflation (in particular non-food inflation). Here again we see we very weak in month-over-month inflation numbers. The average month-over-month inflation in the last 4 months stood at a paltry 0.13% (annualised 1.6%) resulting in a year-over-year number of only 5.23%. So, as far as inflation is concerned consumer confidence remains quite low.

Imports have, however, fared a little bit better. The first 9 months saw a growth of 14% compared to the previous year. However, we must not forget that imports are growing from a low base. That is precisely why our current account surpluses continue, along with growing Foreign Exchange reserves.
Thus it is seems to me that the major economic indicators indicate a growth rate below 6.2%. For proper economic policymaking, the decision makers surely need access to accurate data which show the business cycle movements. I for one would surely be interested in looking at how the growth had been calculated.

The writer is an Investment Analyst.

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