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Citibank: Unrest to hit economy

  • Published at 06:23 pm January 6th, 2014

Bangladesh’s GDP growth target for the current fiscal year seems ambitious due to domestic instability, the Citibank NA Bangladesh said in its latest report released yesterday.

“etAlthough a target of 7.2% GDP growth was in the national budget for FY14, the target seems a bit ambitious amid faltering global economic recovery and domestic instability,” said the financial service provider in its annual market update-2013.

Different international agencies have already revised their growth projection downwards, some even cautioning a growth rate below 6.0%.

However, the central bank, in its half-yearly Monetary Policy Statement for July-December 2013, forecast that output growth is unlikely to deviate significantly from the last ten-year average of 6.2%.

The Citi analysis, however, said the year 2013 has been one of the most challenging years for the country’s economy in the recent times.

“Failure to convince international agencies regarding Padma bridge project, collapse of a garment factory killing over 1,100 people and subsequent US suspension of GSP facilities, large scale financial scams, unprecedented political violence, etc damaged the image of the country and its growth potentials.”

However, against all odds, Bangladesh has been able to attain a GDP growth of 6.03% in FY13. Although this marks a drop in GDP growth rate for two consecutive years, growth of over 6.0% is quite respectable where the projected growth of developing countries is around 5.0% in 2013, said the analysis.

It said the drop in GDP growth rate from 6.23 % in FY12 is mainly attributed to slowdowns in agriculture and services sectors. The slowdown in agriculture sector from 3.11% in FY12 to 2.17% in FY13 is largely due to the base effect of two consecutive years of record growth and lower output due to the falling price along with weather-related disruptions.

On the other hand, investment climate suffered during the second half of FY13 due to series of national strikes and consequent disruptions to the supply chain. As such growth of service sector slowed down to 5.73% in FY13 from 5.96% in FY12 as the retail and wholesale trade sectors were particularly affected.

The Citit said supply chain disruption has led inflation marginally up ahead of the year-end. To reflect changing consumption patterns and demographics, Bangladesh Bureau of Statistics introduced a new consumer price index (CPI) series, effective from July 2013, using 2005-06 as the base year.

Using the new base year, point-to-point inflation peaked in April 2013 at 8.37% from a moderate level of 6.62% in January, before it started to ease from June onwards.

By October point-to-point inflation came down to 7.03%, its lowest level in 2013. However, due to the political and economic impasse, inflation inched up to 7.15% in November.

“This increase was mainly driven by higher food inflation that prevailed in the preceding months due to the disruption in the supply chain as a result of continual blockades throughout the months of October and November,” said the analysis.

Food inflation shot up in October to 8.38 % from 7.93 % in September and recorded at 8.55 % in November. However, sluggish economic activity restricted non-flood inflation below 6% level post August. Annual average inflation also rose marginally to 7.51% (using 2005-06 base) in November on account of increased food inflation.

The national budget for FY14 set inflation target of 7.0% using the 1995-96 base. The equivalent target using the 2005-06 base could be in the range of 6.0 - 6.5%.

The risks to the inflation target stem partly from the wage increase in private (garment) sector and the expected wage increase in the public sector, which will create aggregate demand pressures. Another risk to food inflation in particular stems from possible supply-side disruptions due to political strife and natural disasters. Bangladesh’s GDP growth target for the current fiscal year seems ambitious due to domestic instability, the Citibank NA Bangladesh said in its latest report released yesterday.

“Although a target of 7.2% GDP growth was set in the national budget for FY14, the target seems a bit ambitious amid faltering global economic recovery and domestic instability,” said the financial service provider in its annual market update-2013.

Different international agencies have already revised their growth projection downwards, some even cautioning a growth rate below 6.0%.

However, the central bank, in its half-yearly Monetary Policy Statement for July-December 2013, forecast that output growth is unlikely to deviate significantly from the last ten-year average of 6.2%.

The Citi analysis, however, said the year 2013 has been one of the most challenging years for the country’s economy in the recent times.

“Failure to convince international agencies regarding Padma bridge project, collapse of a garment factory killing over 1,100 people and subsequent US suspension of GSP facilities, large scale financial scams, unprecedented political violence, etc damaged the image of the country and its growth potentials.”

However, against all odds, Bangladesh has been able to attain a GDP growth of 6.03% in FY13. Although this marks a drop in GDP growth rate for two consecutive years, growth of over 6.0% is quite respectable where the projected growth of developing countries is around 5.0% in 2013, said the analysis.

It said the drop in GDP growth rate from 6.23 % in FY12 is mainly attributed to slowdowns in agriculture and services sectors. The slowdown in agriculture sector from 3.11% in FY12 to 2.17% in FY13 is largely due to the base effect of two consecutive years of record growth and lower output due to the falling price along with weather-related disruptions.

On the other hand, investment climate suffered during the second half of FY13 due to series of national strikes and consequent disruptions to the supply chain. As such growth of service sector slowed down to 5.73% in FY13 from 5.96% in FY12 as the retail and wholesale trade sectors were particularly affected.

The Citit said supply chain disruption has led inflation marginally up ahead of the year-end. To reflect changing consumption patterns and demographics, Bangladesh Bureau of Statistics introduced a new consumer price index (CPI) series, effective from July 2013, using 2005-06 as the base year.

Using the new base year, point-to-point inflation peaked in April 2013 at 8.37% from a moderate level of 6.62% in January, before it started to ease from June onwards.

By October point-to-point inflation came down to 7.03%, its lowest level in 2013. However, due to the political and economic impasse, inflation inched up to 7.15% in November.

“This increase was mainly driven by higher food inflation that prevailed in the preceding months due to the disruption in the supply chain as a result of continual blockades throughout the months of October and November,” said the analysis.

Food inflation shot up in October to 8.38 % from 7.93 % in September and recorded at 8.55 % in November. However, sluggish economic activity restricted non-flood inflation below 6% level post August. Annual average inflation also rose marginally to 7.51% (using 2005-06 base) in November on account of increased food inflation.

The national budget for FY14 set inflation target of 7.0% using the 1995-96 base. The equivalent target using the 2005-06 base could be in the range of 6.0 - 6.5%.

The risks to the inflation target stem partly from the wage increase in private (garment) sector and the expected wage increase in the public sector, which will create aggregate demand pressures. Another risk to food inflation in particular stems from possible supply-side disruptions due to political strife and natural disasters.