Bangladesh's GDP (gross domestic product) growth will slow down in the current fiscal year and stand at 6 percent against the government's target at 7 percent, the World Bank forecast.

The growth was 6.7 percent last fiscal year.

A WB report -- Global Economic Prospectus: Uncertainties and Vulnerabilities -- released yesterday said the world economy has entered a dangerous period and developing countries including Bangladesh will suffer from its negative impact.

Economists have also agreed with the WB observation and said the growth rate may be lower due to such domestic factors as slow investment, high inflation and volatile exchange rate.

The report said, “Growth in several major developing countries is significantly slower than it was earlier in the recovery, mainly reflecting policy tightening initiated in 2010 and early 2011 in order to combat rising inflationary pressures.”

The Euro area represents about one fourth of South Asian merchandise export market including Bangladesh, the report said, adding that the European demand for merchandise will go down due to a debt crisis there.

According to Bangladesh Bank statistics, economy is already showing some signs of slowdown.

The number of instances of LC (letter of credit) opening to import capital machinery and raw materials has come down in the first five months of the current fiscal year.

The GDP growth rate will be affected this fiscal year due to high inflation and an increase in exchange rate, said Zaid Bakht, research director of Bangladesh Institute of Development Studies.

Bakht said the investment rate is also sluggish. Although an improvement was noticed in the power sector, the gas crisis is hindering investment, he added.

He said an increase in banks' lending rate in recent times may also hold back investment.

The WB mentioned some local factors such as policy uncertainty, stalled reforms and deteriorating political and security conditions behind the slowdown in investment in South Asian countries including Bangladesh.

WB's senior economist in Bangladesh Zahid Hussain said the country is vulnerable to a severe crisis in high income countries because of its reliance on commodity exports and remittances.

He said the WB report estimates that a severe crisis could cause remittances to developing countries to decline by 6 percent or more with particularly acute impacts on the 24 countries where remittances represent 10 percent or more of their GDP. Bangladesh is one such country.

Hussain also said one would have expected some reprieve from a decline in international oil prices as happened in 2009 due to weak demand. But oil prices so far have proven resilient around the $110 per barrel level because of turmoils and uncertainties in Russia, Nigeria, Libya and, of late, the problems with Iran.

The WB economist also said, “We should of course guard against excessive pessimism”.

He said industrial activities in Europe, Central Asia, the US and Japan have picked up since August last year. But the global trade volume, particularly European imports, has declined during the three-month period ending in October last year.

“That does not bode well for Bangladesh. It is always good to hope for the best, but prepare for the worst,” said the WB economist.

The Daily Star/Bangladesh/ 19th Jan 2012