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WB projects Bangladesh's GDP at 5.5pc for '08 PDF Print E-mail
Friday, 11 January 2008

UNB . Dhaka

The World Bank has projected Bangladesh's economic growth at 5.5 per cent for 2008, lower than domestic estimates, due to political tensions, severe flooding and cyclone Sidr.

Rising inflation, potential threat to exports, increase in the food and energy prices and pressure on external balance would have an adverse impact on the economy, according to WB's Global Economic Prospects 2008 released on Wednesday.

The Bangladesh Bank as well as independent domestic researchers estimated that the GDP growth would be over 6 per cent in 2008.

According to the GEP, South Asia's regional GDP was vibrant at 8.4 per cent in 2007, easing only moderately from the 8.8 per cent outturn of 2006.

The regional growth is expected to pick up to 8.1 per cent by 2009 as recovering growth in the OECD firms up external demand and as receding oil prices ease pressures on the import bill.

In 2008, global growth is expected to be 3.3 per cent.

'Heightened political tensions and severe flooding were curbing demand in the second half of 2007 and will contribute to a full percentage point reduction in growth to 5.5 per cent for 2008,' said the WB outlook.

It said tighter domestic credit conditions in Bangladesh induced a softening in investment growth, while net exports turned negative, explaining the slight moderation in growth from 6.6 per cent in 2006 to 6.5 per cent in 2007.

European and US restrictions on some categories of Chinese textile and clothing exports will be lifted at the end of 2008, and increased competition in 2009 could hurt regional exporters.

The GEP said potential effects might be discerned by examining developments in Canada, which has not imposed safeguard restrictions on China: Bangladesh's share of Canada's textile and clothing market declined from 7.4 per cent in 2005-06 to 6.9 per cent over 2007 to date.

It said high, and in some cases increasing, commodity prices also present a risk for the region's economies.

Sharp gains in international food prices are a growing threat in a region where food imports represent 11-20 per cent of total merchandise imports. In case of Bangladesh, food imports represent 19 per cent of its total imports.

The GEP noted that world growth slowed modestly in 2007 to 3.6 per cent compared with 3.9 per cent in 2006, a downturn due largely to weaker growth in high-income countries.

It said a weaker US dollar, the specter of an American recession and rising financial-market volatility could cast a shadow over this soft landing scenario for the global economy.

These risks, it added, would cut export revenues and capital inflows for developing countries, and reduce the value of their dollar-investments abroad.

In this context, the GEP projected that the reserves and other buffers that developing countries have built up in past years may be needed to absorb unexpected shocks.

Apart from putting increased pressure on external positions, the World Bank report said higher international food prices carry potentially serious implications for the poorest members of these societies, including Bangladesh.

The higher food prices could strain government coffers and generate increased inflationary pressures given widespread food subsidies, it added.

'Similarly, further increases in energy prices remain a risk for the region, which is highly dependent on oil imports.'

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