World Bank lowers Bangladesh growth forecast further to 5.2% for FY23

The World Bank has cut Bangladesh’s economic growth forecast for the 2022-23 fiscal year further by a 0.9 percentage point to 5.2 per cent, due to a combination of factors -- elevated inflation, energy shortages and tightening of the monetary policy.

The forecast is down from 7.2 per cent growth in the previous year. GDP growth is expected to pick up again and return towards its “potential pace” in FY24 at 6.2 per cent, the global lender said in its latest Global Economic Prospects report on Tuesday, reports bdnews24.com.

Inflation will also affect firms’ input costs, as well as energy shortages, import restrictions, and monetary policy tightening, according to the report.

In conjunction with rising global commodity prices, consumer price inflation has continued to rise, and one-year-ahead inflation expectations remain well above central bank targets.

Since early June, the taka has depreciated by 18 per cent and foreign exchange reserves have declined by $8 billion, pushing inflation to 8.7 per cent year-on-year in December.

The combination of limited foreign exchange buffers and widening external current account deficits encouraged Bangladesh and several other countries to approach the International Monetary Fund for help in bolstering foreign exchange reserves and mitigating external financing pressures.

Bangladesh was “hard hit” by spillovers from the changing global environment, the World Bank said.

The country was priced out of global energy markets and unable to meet the energy needs of households and businesses.

Rising energy costs and supply constraints saw industrial production contract in September from its peak in March. The rising cost of imports about doubled the trade deficit since 2019.

The deficit could have been even larger had it not been for robust growth in demand for its readymade garments and a growing share of the global market.

The government responded to high global energy prices with blackouts and factory closures to reduce energy consumption, stopped purchasing vehicles, and made it harder to purchase luxury goods, among other measures to preserve international reserves.

In October, the World Bank lowered its forecast for Bangladesh’s economic growth for fiscal 2022-23 by a 0.6 percentage point to 6.1 per cent.

On Tuesday, the World Bank slashed its 2023 growth forecasts globally to levels teetering on the brink of recession for many countries as the impact of central bank rate hikes intensifies, Russia's war in Ukraine continues, and the world's major economic engines sputter.

The development lender said it now expected global GDP growth of 1.7 per cent in 2023 -- the slowest pace outside the 2009 and 2020 recessions in nearly three decades. In its previous Global Economic Prospects report, in June 2022, the bank had forecast 2023 global growth at 3 per cent.

The bank said major slowdowns in advanced economies, including sharp cuts to its forecast to 0.5 per cent for both the United States and the euro zone, could foreshadow a new global recession less than three years after the last one.