Industry, service sector indicators 'worrying'
Sunday, 26 April 2009
FE Report
US-based Citigroup says Bangladesh real indicators continue to remain mixed amidst a cautiously upbeat global "macro-backdrop."
"While agriculture growth could surprise on the upside, industry and service sector data points have been worrying," the Citigroup said in a report released Friday from Mumbai, India.
The Citigroup forecasts that the industrial growth declines to 5.4 per cent in fiscal 2009-10 (FY10) on the back of weaker construction activity and manufacturing output.
The report said latest macro data has been erratic - the index for industrial production for manufacturing - available with a three-month lag, recovered to 8.9 per cent in December last from 1.5 per cent in October, 2008.
"Service sector indicators are worrying," it said, adding that trends in cargo handling at the Chittagong port have posted a contraction for four consecutive months, down 17.4 per cent year on year to 1.9 million tonnes in December last from an average of 2.5 million tonnes over the past year.
Air freight traffic has dipped into negative territory. "With trade flows likely to see moderation, we expect service sector growth to slow to 6.0 per cent levels in FY10," the Citigroup said. However, buoyancy in telecom subscribers is encouraging, he added.
Regarding export, the report said nearly 85 per cent of Bangladesh's exports goes to the United States and Europe, while trade within the Asian region accounts for just 8.0 per cent of total exports.
"While there are ongoing efforts to diversify to other Asian and Latam (Latin America) markets, Bangladesh is still relatively vulnerable to a global slowdown," it added.
The report also said another point to bear in mind is that with export-oriented sectors providing employment to a significant proportion of the population; lower growth would have a knock-on impact on consumption and could lead to social tensions.
Textiles and garments include woven and knitwear and comprise as much as 75 per cent of the country's total exports. While woven garments contributes around 40 per cent shares of the total exports.
Quoting industry officials, the report said monthly average sales from knitwear exports to fall by at least 10 per cent.
On a positive note, some firms are expanding capacity and there is evidence of foreign investment taking place; with firms such as Multiline and Pacific Textile (China) setting up plants in Bangladesh.
On 19 April last, the government announced an interim package worth Tk 34.24 billion for agriculture, power and export sectors to help mitigate the immediate effect of the global recession.
Under the fiscal support part of the package for the April-June period of the FY 2008-09, the rates of export subsidy have been raised for three sectors, namely, jute, leather and frozen food.
"While fresh measures will likely be announced in the FY10 budget in June, the full impact of the package should be reflected in FY09 and result in the deficit rising from 5 per cent of gross domestic product (GDP) to 5.6 per cent," the report noted.
Quoting latest data of inward remittances, the Citigroup said that flows have not yet been impacted. But a reason behind strong trends could be that expatriate workers are bringing back savings into the country.
Bangladesh expatriates sent home a record US$7.029 billion in the first nine months of the current fiscal, marking a 24.43 per cent growth over the same period of the last fiscal.
The country received $7.029 billion during the July-March period of this fiscal against $5.649 billion of the corresponding period of the previous fiscal, according to the central bank statistics.
In first 100 days of power, the Awami League (AL) has faced a number of challenges, including student protests, the terrorism threats, ongoing trials for war criminals, and the Bangladesh Rifles (BDR) uprising.
"While the situation appears contained for now, the backdrop of slowing global growth and mounting pressure to curb terrorism, will likely see a number of hurdles for the AL in the year ahead," the Citigroup said.
However, a determined reform process would support economic growth, it added.
US-based Citigroup says Bangladesh real indicators continue to remain mixed amidst a cautiously upbeat global "macro-backdrop."
"While agriculture growth could surprise on the upside, industry and service sector data points have been worrying," the Citigroup said in a report released Friday from Mumbai, India.
The Citigroup forecasts that the industrial growth declines to 5.4 per cent in fiscal 2009-10 (FY10) on the back of weaker construction activity and manufacturing output.
The report said latest macro data has been erratic - the index for industrial production for manufacturing - available with a three-month lag, recovered to 8.9 per cent in December last from 1.5 per cent in October, 2008.
"Service sector indicators are worrying," it said, adding that trends in cargo handling at the Chittagong port have posted a contraction for four consecutive months, down 17.4 per cent year on year to 1.9 million tonnes in December last from an average of 2.5 million tonnes over the past year.
Air freight traffic has dipped into negative territory. "With trade flows likely to see moderation, we expect service sector growth to slow to 6.0 per cent levels in FY10," the Citigroup said. However, buoyancy in telecom subscribers is encouraging, he added.
Regarding export, the report said nearly 85 per cent of Bangladesh's exports goes to the United States and Europe, while trade within the Asian region accounts for just 8.0 per cent of total exports.
"While there are ongoing efforts to diversify to other Asian and Latam (Latin America) markets, Bangladesh is still relatively vulnerable to a global slowdown," it added.
The report also said another point to bear in mind is that with export-oriented sectors providing employment to a significant proportion of the population; lower growth would have a knock-on impact on consumption and could lead to social tensions.
Textiles and garments include woven and knitwear and comprise as much as 75 per cent of the country's total exports. While woven garments contributes around 40 per cent shares of the total exports.
Quoting industry officials, the report said monthly average sales from knitwear exports to fall by at least 10 per cent.
On a positive note, some firms are expanding capacity and there is evidence of foreign investment taking place; with firms such as Multiline and Pacific Textile (China) setting up plants in Bangladesh.
On 19 April last, the government announced an interim package worth Tk 34.24 billion for agriculture, power and export sectors to help mitigate the immediate effect of the global recession.
Under the fiscal support part of the package for the April-June period of the FY 2008-09, the rates of export subsidy have been raised for three sectors, namely, jute, leather and frozen food.
"While fresh measures will likely be announced in the FY10 budget in June, the full impact of the package should be reflected in FY09 and result in the deficit rising from 5 per cent of gross domestic product (GDP) to 5.6 per cent," the report noted.
Quoting latest data of inward remittances, the Citigroup said that flows have not yet been impacted. But a reason behind strong trends could be that expatriate workers are bringing back savings into the country.
Bangladesh expatriates sent home a record US$7.029 billion in the first nine months of the current fiscal, marking a 24.43 per cent growth over the same period of the last fiscal.
The country received $7.029 billion during the July-March period of this fiscal against $5.649 billion of the corresponding period of the previous fiscal, according to the central bank statistics.
In first 100 days of power, the Awami League (AL) has faced a number of challenges, including student protests, the terrorism threats, ongoing trials for war criminals, and the Bangladesh Rifles (BDR) uprising.
"While the situation appears contained for now, the backdrop of slowing global growth and mounting pressure to curb terrorism, will likely see a number of hurdles for the AL in the year ahead," the Citigroup said.
However, a determined reform process would support economic growth, it added.