Warning Signs in Economy: GDP Growth to Drop to 3.9%, Inflation to Rise Further

Economic Desk

Since the violent political upheaval that ousted Sheikh Hasina’s government on August 5 of last year, the country’s economy has been on a rapid decline. With disruptions in the industrial sector, stagnation in investment and production, and overall instability, the Asian Development Bank (ADB) has predicted that Bangladesh’s GDP growth will fall to 3.9% in the fiscal year 2024-25.

This forecast represents a significant decrease compared to earlier predictions.

According to ADB, inflationary pressure will continue to rise, pushing the country’s economy into even more difficult circumstances. Inflation is expected to be higher than initially anticipated.

These details were highlighted in the “Asian Development Outlook” report published on Wednesday.

In the September edition, ADB had forecast a growth rate of 5.1% for the current fiscal year, but it has now revised this figure down to 3.9%. Previously, in the April edition of last year, ADB had expected a growth rate of 6.6%, but due to political instability and slowing economic momentum, that projection was not realized.

ADB suggests that the economy may improve slightly in the 2025-26 fiscal year, with growth possibly reaching 5.1%. In the 2023-24 fiscal year, Bangladesh’s growth was 4.2%.

Inflation is also a concern. Compared to other South Asian countries, inflation in Bangladesh is still rising, and it is expected to continue increasing by the end of the year.

Earlier in April, ADB had predicted inflation would drop to 7%, but by September, it revised this estimate to a rise of 10%. According to the latest forecast, inflation is expected to reach 10.2% by the end of the current fiscal year, but it might decrease slightly to 8% in the next fiscal year.

Several factors have been identified by ADB as contributing to this inflationary surge, including a lack of competition in the wholesale market, information gaps, supply chain limitations, and currency devaluation.

The ADB also pointed out that import restrictions have affected exports, and the energy crisis has added additional strain on the economy. While demand and supply imbalances have led to some increases in costs and investment, the export sector’s growth remains constrained.

During the tenure of the Awami League government, the growth target for the 2024-25 fiscal year was set at 6.75%. However, the violent activities aimed at overthrowing the government in the name of the quota movement led to the end of Sheikh Hasina’s administration, resulting in dramatic changes in all sectors.

For more than a month before August 5, industrial and business activities were intentionally disrupted. While an interim government has assumed power, it took some time for business and law and order situations to stabilize. Although there was unrest in the garment sector, export growth has continued.

ADB has noted that political change, natural disasters, industrial sector instability, and inflation have weakened domestic demand, leading to a decrease in growth.

Ho Yun Jeong, ADB’s Bangladesh Country Director, stated in a press release, “Despite global and domestic challenges, Bangladesh’s economy remains stable. This stability can be further strengthened through structural reforms.”

He added, “The economy must be diversified beyond the garment sector. This requires the development of the private sector, sustainable infrastructure, energy security, financial sector governance, and attracting foreign investment. These initiatives will boost growth, create jobs, and increase competition.”

ADB further stated that if remittance flows increase, consumption and investment could see some acceleration, but tight monetary and fiscal policies, as well as investor caution, will limit this momentum. The imposition of higher tariffs on global markets is also expected to challenge Bangladesh’s exports and growth.

Due to supply chain constraints, political uncertainty, weaknesses in the financial sector, and reduced household spending capacity, growth in the service sector is expected to decline. Agricultural growth will also slow down due to multiple floods, although industrial growth might see a slight boost due to increased export-oriented production.

At the time of this forecast, the U.S. had not yet announced additional tariffs globally. If the U.S. imposes a 37% supplementary tariff on Bangladesh’s exports, total tariffs will reach 52%, up from an average of 15% previously.

Exporters have stated that this will put additional pressure on Bangladesh’s exports and create further challenges for growth. Economists believe that if ADB revises its forecast due to new tariff impositions, the outlook could become even more grim.