The World Bank and International Monetary Fund (IMF), as well as other economic forums and research groups, have recently said that the probability of a global economic recession is increasing as a result of rising interest rates, inflation, and declining economic growth worldwide.
Economists and business leaders of the country warned about the harsh effects of the recession in Bangladesh if policymakers do not address this ongoing inflation and electricity crisis.
“During the recession, the two main influences on our economy will be to maintain the balance of payments and fight with inflation. Though the balance of payment problem has started, it is still under control. Meanwhile, our power shortage has become a new headache. Besides, the monetary policy is still not used properly by our policymakers. Although it is heard that the lending rate may be lifted, it should have been done much earlier,” Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh told Dhaka Tribune.
Even though there is no exact measure of recession in our economy, the former division chief at IMF thinks that Bangladesh will not fall into recession but will slow down our development growth.
“There is no set of measurements for recession in developing countries like ours. However, in developed countries, if there is negative growth in GDP for two consecutive quarters, it is considered recession. But in our country, this measurement is not done every quarter (3 months),” said Zahid Hussain, lead economist consultant for the World Bank.
“High inflation transitions into stagflation, which takes the form of recession. If inflation rises, you will need more money for purchasing commodities, forcing you to withdraw more from your deposits. This will not only deplete your savings, but will also give rise to a liquidity crisis in the banking sector. And the data of the last few months from Bangladesh Bank is showing just that.”
“Taming inflation is still the main challenge for policymakers in order to reduce the impact of the upcoming recession on Bangladesh and if they fail to do it properly, we will have a severe effect of recession.”
“Certain measures are still not being taken by the government. The electricity shortage is becoming an additional headache. Inflation on the other hand is increasing and no decision has yet been made on the interest rate. Although it can be heard that a decision in this regard is coming soon, it is already too late,” he added.
What businesses say
Moreover, Europe and the US are at severe risk of recession and financial stability, putting pressure on the manufacturers and exporters of the country as they are the biggest export destination for Bangladesh.
Talking to Dhaka Tribune, Faruque Hassan, president of the BGMEA, said that if this inflationary pressure leads to an economic recession in our prime destinations, it will have a major impact on our apparel exports.
“We’ve already experienced a negative growth in export earnings which may be worsened further in the coming months,” he added.
He also said that they have to design apparel items according to the demands of those countries.
Moreover, banks can play a vital role as the interest rate is quite high in Bangladesh compared to the global market.
The government can play also a big role by giving long-term policy support to combat the ongoing turbulent situation, he added.
M Shahadat Hossain, president of the BTTLMEA, said that some countries and their patrons should understand the current turbulent situation of the global economy brought about by their decisions.
“They should withdraw them from the war for the sake of the global economy. As a manufacturing country, we are bound to be a victim,” he added.
“New export destinations can be a solution but when there will be a global recession, no one will be out of the purview of its impact,” he added.
However, as big economies like Japan, South Korea, Australia, China, and Middle Eastern countries may narrowly escape the primary impact of the recession, Bangladesh should study their trends and export items as per that.
BGMEA Director Mohiuddin Rubel said that if there is a recession in the international market, it will be very difficult to sustain the growth.
“We should focus on producing high-value products as small volumes of high-end products generate high revenue,” he added.
World Bank: Risk of a global recession in 2023
As central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging towards a global recession in 2023 and a string of financial crises in emerging markets and developing economies would do them lasting harm, according to a comprehensive new study by the World Bank published on September 15.
IMF: The worst is yet to come
On October 11, the International Monetary Fund (IMF) said that the world economy was headed for “stormy waters” as it downgraded its global growth projections for next year and warned of a harsh worldwide recession if policymakers mishandled the fight against inflation.
World Economic Forum
In a survey released by the Switzerland-based World Economic Forum on September 28, seven out of 10 respondents in a sample of 22 leading private and public sector economists said they believed a global recession was at least somewhat likely in 2023.
Ned Davis Research
Ned Davis Research, a Florida-based research firm known for its Global Recession Probability Model, raised the likelihood of a global recession next year to 98.1%, the highest since the Covid-19 pandemic-related downturn of 2020 and the global financial crisis of 2008-2009.
The government’s take
Last week on October 11, Prime Minister Sheikh Hasina, in a meeting of the executive committee of the national economic council (ECNEC) again cautioned people to be careful, keeping the global situation in mind.
Earlier, addressing a program she said: “I am again urging all to be active in enhancing food production, so the people of Bangladesh don't face any suffering during the world economic recession. We have to do our arrangement by our own.”
She said: “There is no other way, except becoming cautious, saving and maintaining austerity. Apart from this, also boost production to be self-reliant in food.”
Even at a media conference at Gonobhaban on October 6, she also warns about the recession, “Whatever agricultural land or water bodies you own, make use of them.”
The prime minister told the media that she had interactions with leaders from many countries on the sidelines of the UN General Assembly where the world leaders expressed fear that the world will face an even more difficult time in 2023 and countries may face severe crises like recession.
