Forecast on GDP growth cut to 3.9pc amid headwinds

Mideast mayhem may push 1.2m more Bangladeshis below poverty line

FE REPORT | Published: April 09, 2026 00:16:42

A challenging economic landscape of Bangladesh is drawn by the World Bank that downgrades the country's GDP growth to 3.9 per cent for the current fiscal year, citing some headwinds.
The Washington-headquartered development financier warns that the Middle-East turmoil may push an additional 1.2 million Bangladeshi people below the poverty line, largely offsetting any potential gains.
Such unhappy prediction comes in the bank's Bangladesh Development Update-Spring 2026 report published Wednesday, as the Mideast turmoil upsets normal order not only in Bangladesh but worldwide.
This downward revision of Bangladesh's gross domestic product (GDP) growth for the fiscal year 2025-26 from an earlier projection of 4.6 per cent is attributed to the compounding effects of the ongoing Middle-East conflict and persistent domestic macroeconomic fragilities, according to the development update.
The WB Bangladesh office in Dhaka rolled out the Bangladesh Development Update-Spring 2026 report.
Senior WB economist Dhruv Sharma in his presentation said real GDP growth is projected to remain subdued, reflecting the spillover effects of the Middle-East conflict, alongside a pre?existing slowdown in export growth and continued weakness in both public and private investment.
He says the net exports are projected to constrain growth, as imports increase with higher energy-import payments, resulting from the Mideast conflict and softened export momentum.
"Over the medium term, growth is expected to strengthen gradually, contingent on improved business confidence and the acceleration of structural reforms," the economist adds.
The Bangladesh Development Update report notes private investment saw its first negative growth in 35 years during FY2025, declining by 3.6 per cent, due to heightened political uncertainty and elevated borrowing costs.
The rising global energy prices and potential exchange-rate depreciation are expected to add further pressure to already-elevated inflation and fiscal balances, it says.
The escalation of conflict in the Middle East poses significant macroeconomic risks for Bangladesh at a time when the economy is already under strain from elevated inflation, limited policy space, and weak growth momentum.
Given Bangladesh's heavy dependence on imported energy and strong economic linkages with the Gulf region through trade and labour migration, the shock could be transmitted through several macro?critical channels, the update predicts.
It says the most important impacts are likely to materialize through the current-account balance, inflation, and fiscal pressures from energy subsidies.
The conflict could adversely affect all major components of the current account -- imports, exports, and remittances -- putting renewed pressure on foreign-exchange reserves.
"The Middle East conflict is also likely to negatively impact remittance inflows and exports. Gulf countries account for about 3.0 per cent of GDP in remittances, or about 50 per cent of Bangladesh's total remittance inflows.
"A prolonged conflict could slow economic activity and fiscal spending in host countries, dampening labor demand and wage growth, which in turn could weaken remittance inflows. Disruptions to global trade routes and slower demand growth in key markets could also lower exports."
Assuming crude-oil prices remain elevated, the WB says, the current-account deficit is projected to widen to approximately 0.8 per cent of GDP in FY2026 and 1.0 percent of GDP in FY2027.
"If passed on to the consumers, higher global oil and gas prices would raise domestic energy costs. Increases in energy prices directly affect agricultural and industry production costs. Increase in transport costs could generate broad-based spillovers on prices economy-wide."
Partial pass-through of the energy prices could lead to 0.5-percentage-point higher inflation than the pre-conflict scenario in the upcoming months.
"Inflation could worsen further if external pressures could lead to currency depreciation. A weaker taka would raise the local currency cost of imported food, fuel, fertilizer, and industrial inputs, further amplifying inflationary pressures," the Bank says.