Market publisher's report on Bangladesh

Bangladesh Business Forecast Report Q1 2011

We expect Bangladesh’s economy to cool down in FY 2010/11 (July-June) with GDP growth coming in at 5.6% after provisional data showed the economy growing at 6.0% in the preceding fiscal year. As the current political climate remains fragile due to increasing angst between the two main political parties, the resulting unrest will likely hold back economic potential. Despite the recent strength of the economy’s export sector and our forecast for outperformance in H111, we expect private consumption to do the opposite due to high inflation and flattening remittances creating a drag on overall economic growth.

The country is set to experience further political instability as political unrest grows over the eviction of former prime minister and current opposition leader Begum Khaleda Zia from her home of 30 years. The opposition party, the Bangladesh National Party has called two hartals (strikes) in the space of two weeks following Zia’s eviction, spurring violence in pockets around the country.

Furthermore, the ruling Awami League’s plan to ban religion-based politics will likely bolster the nation’s international reputation in the eyes of western governments but could potentially stoke religious backlash at home. The proposed ban places severe downside pressure on Bangladesh’s long-term political risk rating of 53.8.

We are forecasting private consumption to underperform through the rest of FY 2010/11 as remittance growth continues to flatten and as high inflation constrains household budgets. A weak recovery in key markets, coupled with declining manpower exports, has led to weak remittance inflows over the past year. Rising food prices and rapidly expanding money supply growth will continue to place upside pressure on headline inflation over the coming quarters. The weakness of remittance inflows will also lead to a smaller current account surplus in FY 2010/11. On a positive note, strong export performance over the first few months of FY 2010/11 should carry the economy through H111.

Though we are forecasting private consumption to underperform in the short term, we highlight a promising domestic demand story in the long term which is a plus for the country’s long-term business environment. The country’s favourable demographic profile and the rapid rate of urbanisation offer a very compelling long-term growth story. With a score of 30.9, Bangladesh currently ranks 134th out of 167 countries in our proprietary business environment ratings. In particular, the country’s business environment is held back by weak institutions and an unfavourable market orientation.

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