The Asian Development Bank (ADB), in its latest forecast, predicted Bangladesh's economic growth to gain momentum; while inflation was also expected to ease in FY26.
Bangladesh’s economy is estimated to grow by 4% in FY25, rising to 5% in FY26, according to the Asian Development Outlook (ADO) September 2025, released on Tuesday.
The economy expanded by 4.2% in FY24.
The report stated that inflation is estimated to rise from 9.7% in FY24 to 10.0% in FY25.
It’s also forecast that inflation is expected to ease to 8.0% in FY26.
Consumption will be the main driver of growth in FY26.
Fiscal and current account balances are likely to improve in FY26.
Even a 20% US tariff on Bangladesh exports since August 2025 will likely hit exports, the report said.
It also said that although readymade garment (RMG) exports remain resilient, the slower growth estimate reflected subdued domestic demand amid ongoing political transitions, recurrent flooding, industrial labor disputes, and persistently high inflation.
However, growth is expected to recover in FY26 with improved domestic demand, and inflation should ease.
Given the uncertain impact of the US tariffs on Bangladesh’s international trade and elevated banking sector vulnerabilities, achieving higher growth will require improving the business environment to boost competitiveness and attract investment, as well as securing reliable energy supplies.
Hoe Yun Jeong, ADB country director for Bangladesh, said: “Future growth will depend on improving the business environment to boost competitiveness and attract investment, and on ensuring reliable energy supplies.”
“The impact of US tariffs on Bangladesh’s trade remains to be seen, and vulnerabilities in the banking sector persist. Addressing these challenges is essential to achieving higher economic performance,” he further said.
He remarked: “Some downside risks to the FY26 outlook persist. Trade uncertainty, banking sector weaknesses, and potential policy slippages could impede progress. Maintaining prudent macroeconomic policies and accelerating structural reforms are critical to strengthening resilience.”
Inflation to ease
Inflation is estimated to rise from 9.7% in FY24 to 10.0% in FY25, driven by limited competition in wholesale markets, inadequate market information, supply chain constraints, and the weakening of the Taka.
Regarding FY26, it stated that inflation is expected to ease to 8% in FY26, as projected in the April forecast.
Inflationary pressures are likely to moderate, assuming favorable weather, lower global oil prices notwithstanding conflict in the Middle East, and tighter monetary and fiscal stances.
The Bangladesh Bank’s monetary policy statement for the first half of FY26 emphasized containing inflation and managing inflation expectations amid ongoing domestic and external challenges.
The central bank is expected to keep policy rates steady unless headline inflation falls below 7%, the report also said.
Insights
The current account is expected to post a small surplus of 0.03% of GDP in FY25, up from a deficit of 1.5% of GDP in FY24, supported by a narrowing trade gap and robust remittance inflows.
Looking ahead, the ADO September 2025 forecast predicted that consumption will remain the primary driver of growth in FY26, spurred by robust remittance inflows and election-related spending.
Fiscal and current account balances are likely to improve in FY26, the report forecast.
However, contractionary monetary and fiscal policies, along with heightened investor caution, are expected to dampen investment.
Global tariff hikes, including a 20% tariff on Bangladesh exports to the US, and stiffer competition in the EU are expected to weigh on exports and growth.
Exporters may be compelled to reduce unit prices in response to this heightened competition.
On the supply side, services are expected to expand, driven by improved household purchasing power.
Agricultural growth is likely to normalize, contingent on favorable weather and effective government policy support. In contrast, industrial growth may slow as US tariffs constrain economic activity.
US Tariff and impact
The ADO stated that a 20% US tariff on Bangladesh exports since August 2025 will likely hit exports to the US substantially and thus impact GDP.
These exports amounted in FY25 to 18% of total exports and 1.9% of GDP.
The new tariff will raise average duties on Bangladesh exports to the US from 15% to 35%, with apparel tariffs climbing from 16.8% to 36.8% and some items such as manmade fiber sweaters reaching 52%, disproportionately affecting women workers.
While the tariffs are less stringent than those applied to India or the People’s Republic of China, they can erode demand for Bangladesh exports to the US.
In addition, exports to the European Union will face stiffer competition, forcing exporters to lower prices unless they manage to diversify markets, explore new trade agreements, and take measures to enhance competitiveness.
Downsides
According to the report, the outlook for FY26 is subject to downside risks. Trade uncertainty arising from new US tariffs and potential disruption from geopolitical tensions could hinder export growth.
Poor implementation of the new managed float exchange rate policy could worsen external imbalances.
Despite recent monetary tightening, higher election-related spending and unsterilized liquidity support to weak banks may raise inflation and pressures in the foreign exchange market while weakening governance reform.
If banking sector weaknesses persist, credit could tighten, growth slow, and fiscal liabilities rise.
Government financing needs may rise due to weak domestic revenue. Further downside risks are climate-related shocks and potential slippage in fiscal and monetary management.
These issues underscore the importance of maintaining prudent macroeconomic policies and accelerating structural reform to fortify economic resilience in FY26.
