Wednesday, April 10, 2013

GDP growth will dip to 5.7pc this fiscal : ADB

GDP growth will dip to 5.7pc this fiscal : ADB 

Falling export, domestic demand growth blamed


Wednesday, 10 April 2013

The Asian Development Bank (ADB) has projected Bangladesh's economic growth to be slipping to 5.7 per cent in the current fiscal 2012-13, falling by 1.50 percentage points from the government estimate of 7.2 per cent.

The Asian Development Outlook (ADO) 2013, released in the ADB's headquarters in Manila Tuesday, said the gross domestic product (GDP) growth will dip in the current fiscal due to falling export and domestic demand growth.

"Export demand, a major contributor to GDP growth, is expected to slacken slightly, reflecting the ADO baseline assumptions that the euro area economy stagnates and the US recovery remains frail," said the ADO.

It further said despite higher remittances, growth in demand for private consumption is expected to weaken as households adopt a cautious approach to spending because of political uncertainties ahead of parliamentary elections expected by early 2014 and depressing production in industries oriented to

domestic markets.

The ADB also forecast Bangladesh's GDP growth at 6.0 per cent in the next financial year (FY) 2013-14.

The outlook said industrial growth is expected to slow to 6.5 per cent in FY2013, reflecting slack demand externally and domestically.

It has, however, projected higher industrial growth in next FY2014 with expected improvements in external and domestic demand.

The ADB outlook said economic forecasts for FY2013 and FY2014 rest on four assumptions--firstly, the central bank's slight easing in monetary policy announced in January 2013 will not stoke inflation, given the declining trend in international commodity prices and a favourable domestic crop outlook.

Secondly, the government will contain subsidies by continuing to raise fuel and electricity prices and thus keep in check its need for bank borrowing.

Thirdly, though political activity is expected to be volatile, social stability will be maintained. And, finally, weather will be favourable.

Consumer subsidies artificially reduce the price of energy, diverting it from more efficient uses and disproportionately benefiting the non-poor, the ADB said adding subsidies impose a tremendous burden on public budgets, exceeding 4.0 per cent of the GDP in Bangladesh.

Favourable rainfall during planting and expanded acreage sown to the winter rice crop should help agricultural output in FY2013 recover to 4.2 per cent growth, it said adding greater access to credit resulting from central bank initiatives is expected to bolster output from livestock, aquaculture, and non-cereal crops.

In FY2014, agricultural growth is projected to ease to 4.0 per cent, returning to trend following the previous year's high base, the ADB forecast.

Services growth in FY2013 is expected to slow to 6.0 per cent, reflecting weaker economic activity, and then expand by at least 6.1 per cent in FY2014 on moderate recovery in overall demand.

The ADB outlook said average annual inflation is projected to slow to 7.8 per cent in FY2013.

It said export growth is expected to slow slightly to 6.0 per cent in FY2013, reflecting economic doldrums in the euro area and slow recovery in the US.

The current account is projected to show a larger surplus of 2.0 per cent of the GDP in FY2013 as the trade deficit narrows.

"Net inflows of foreign assistance rose sharply and FDI inflows improved. Pressure on the balance of payments will remain low in FY2014, though the current account surplus is expected to shrink to 1.0 per cent of the GDP as economic recovery revives imports," the ADB report said.

Revenue collection grew by 15.1 per cent in the first 7 months of FY2013, probably too slowly to meet the budget's target improvement of 21.6 per cent, it said.

"The Annual Development Programme spending will rise as the government seeks to address infrastructure deficits ahead of the elections but will nonetheless remain below the budget target."

The government is holding current spending on subsidies in check by setting fuel and electricity prices higher, the outlook said.

The overall deficit is expected to stay within the targeted 5.0 per cent of the GDP, the ADB outlook projected.

"Economic developments in the euro area and the US may prove to be much weaker than assumed in the ADO baseline, materially affecting exports from Bangladesh", the outlook cautioned.

"Another risk is budget revenues weakening if political unrest intensifies enough to markedly disrupt economic activity. Extreme spending policies to brighten re-election prospects could compromise monetary and fiscal discipline. Natural disasters pose perennial risks," the ADB said.

To overcome the projected risks, the ADB suggested that Bangladesh needs to give priority to enhancing its business climate, which the World Bank's Doing Business 2013 shows deteriorating in the past year.

The country also lags in South Asia in terms of infrastructure quality, as seen from the World Economic Forum's Global Competitiveness Report 2012-13. In addition to improved infrastructure and trade logistics, the trade regime needs to become more open to force manufacturers to improve their productivity and global competitiveness, the outlook said.

The country's policy-makers need to identify new growth drivers, notably promoting labour-intensive manufacturing for export and expanding industry to serve domestic markets, the ADB suggested

Source:  
            Wednesday, 10 April 2013

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