ADB cuts Bangladesh growth forecast as Ukraine effect pans out

The September update from the bank saw the country’s growth forecast fall from 7.1% to 6.6%

The Asian Development Bank has revised Bangladesh’s growth forecast for 2023 down from 7.1 percent to 6.6 percent in its latest economic report.

The drop reflects the likely impact of the war in Ukraine on exports, domestic energy shortages and fiscal tightening, the organisation said in the September update released on Wednesday.

However, the report noted that the country’s growth in FY2022 edged above its forecast in April, rising from 6.9% to 7.2%.

The difference was due to a “broad-based recovery in industry and services, supported by rising domestic and external demand”, the report said.

“Remittances lifted private consumption expenditure, increased subsidies and transfers raised public consumption, and investment grew on the implementation of large government infrastructure projects,” it added.

The inflation rate for FY2022 was also higher than the April forecast, rising from 6.0% to 6.2%. The change in the inflation forecast for FY2023 was even sharper, up from 5.9% to 6.7%.

According to the report, inflation jumped from 6.3% to 7.4% between April and May 2022. It was 7.6% in June and 7.5% in July.

Despite this, the change in the growth and inflation forecasts for Bangladesh were among the smallest in the South Asia region.

The ADB report also noted that remittances had stayed strong, but would likely weaken over time.

Similar to India and Pakistan, Bangladesh’s current account balance is likely to worsen as remittances fall and trade deficits rise, the report said.

Against the backdrop of monetary tightening by central banks, the ramifications of the Ukraine war and China's continued zero-COVID policy, the ADB expects developing economies in Asia to grow 4.3% this year, having previously trimmed the forecast to 4.6% in July from 5.2% in April.

The overall regional economy is expected to expand 4.9% slower than the April and July forecasts of 5.3% and 5.2%, respectively, it said.

A significant global economic downturn is also likely to weigh heavily on the demand for the region's exports, the ADB warned.

"As many economies reopen, domestic consumer spending and investment are increasingly driving growth, supported by recovering tourism and healthy remittances. But export growth

is already decelerating due to flagging global demand."

For the first time in more than three decades, the rest of developing Asia is on course to outpace China's economic growth.

The ADB expects China's economy, the second-largest in the world, to grow by 3.3% this year, after previously revising its forecast down to 4.0% from 5.0% in April.

The growth forecast for South Asia, however, remains unchanged at 6.5%, despite lower estimates for India and crisis-ridden Sri Lanka.

At the same time, the Manilla-based lender raised its inflation forecasts in the region in light of the supply disruptions triggered by rising food and fuel prices.

Average inflation in developing Asia is now expected to hit 4.5% this year, up from July's projection of 4.2%.