Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has expressed caution that Bangladesh needs to remain alert to maintain competitiveness of its exports, particularly that of price-sensitive apparel products.
A downturn in the demand for Bangladesh’s exports, especially ready-made garments (RMG), may take place against the backdrop of weak global growth outlook, according to the warning.
“It would also be important to ensure enough flexibility to absorb external economic shocks and adapt to any disruption emanating from those shocks,” the central bank said in its Bangladesh Bank Quarterly (BBQ) for the April-June period of 2012.
The BB also suggested that effective steps need to be taken to ensure solid macroeconomic fundamentals, supported by prudent monetary, fiscal, and exchange rate policies for meeting such challenges.
The recent performance of the world’s major economies remained mostly subdued due to multiple rounds of economic and financial crises in the recent past.
“Despite recurrent crises in the global arena, the Bangladesh economy shows its resilience by maintaining more than six per cent real gross domestic product (GDP) growth in the recent years,” the quarterly report said.
The report also said the inflation as measured by consumers’ price index (CPI), on the other hand, has been declining since February 2012. It reached an 18-month-low of 8.56 per cent on point-to-point basis at the end of June 2012, due mainly to sharp decline in food inflation.
“Given the continuation of tight monetary policy, the CPI inflation is expected to soften further,” the central bank noted.
The near-term inflation outlook is, however, conditioned by a number of factors that might emerge from upward adjustment of energy prices and any natural disruption in crop production along with any instability in the global commodity market, the central bank said in its latest quarterly report.
The near-term outlook of the Bangladesh economy remained broadly positive. The GDP growth target has been set at 7.2 per cent, while the target for CPI inflation has been set at 7.5 per cent for the fiscal year 2012-13.
“In view of the economy’s past growth performance, the GDP growth target is not unrealistic. For achieving the targeted growth, the near-term policy thrust requires sustenance of recent economic activities and strengthened support to lead the economy to higher growth,” it noted.
The central bank said satisfactory growth in productivity is crucial to ensuring the positive near-term economic outlook, which has been suffering from continuing power shortage, other infrastructure bottlenecks, and socio-political events.
“It would be important to strengthen the infrastructure and other support services, and ensure congenial business climate, especially prior to the general election in early 2014,” the BB said.
Failure to ensure this would widen the gap between rising aggregate demand and domestic production, creating new challenge for economic management with consequent adverse impact on production and growth, according to the report.
“The possibility of unexpected events including floods and other socio-political instability could substantially change the outlook. Thus it would be important to take precautions against any unexpected natural calamities along with ensuring timely supply of inputs to the farmers and take measures to minimize domestic vulnerabilities and risks,” the BB noted.
BBN/SSR/AD-01Oct12-10:40 am (BST)