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2023 to be year of recovery for market, with external factors well managed

BRAC EPL explains why in its annual forecast

BABUL BARMAN | January 12, 2023 00:00:00

The wounds that the stock market suffered last year will heal to some extent this year triggering a process of recovery even if businesses take cautionary approaches, said one of the top brokers in the country.

BRAC EPL Stock Brokerage came up with its market forecast mainly taking three aspects into account -- export, import and foreign exchange reserves.

The Russia-Ukraine caused a sharp rise in commodity prices, especially the oil price. As a result, the import growth accelerated fast outstripping exports. The trade gap widened leading to the depletion of the foreign exchange reserves.

Things will be better, making the market more resilient against external factors, said BRAC EPL in a report, a copy of which has been collected by the Financial Express.

Import had shot up, reaching the peak between the fourth quarter of the FY21 and the second quarter of the FY22. To bring it down, the government took austerity measures and imposed restrictions on imports of non-essential items.

That already showed results as letter of credit (LC) openings dropped 8.57 per cent in July-Sept of the FY23, compared to the same quarter of the previous year.

The import growth will be subdued further this year by "increased scrutiny and tighter regulation". Moreover, commodity prices will slide due to a decline in oil prices in the global market and a sluggish demand, according to BRAC EPL.

Exports grew strongly in the second half of 2022 because of the zero-Covid policy in China that shifted orders to Bangladesh and for the currency depreciation.

The export growth will remain as robust in 2023 as it was last year.

Bangladesh's export volume jumped more than 34 per cent year-on-year to all-time-high $52.08 billion in the FY22.

"Lower import growth on the back of stagnant export growth might reduce the trade gap," reads the report.

That will help ease the pressure on the foreign exchange reserves which stood at $32.52 billion as of Monday, after the central bank had cleared import bills to the Asian Clearing Union.

Rising living costs in other countries affected the remittance inflow. Foreign exchange rates volatility squeezed the remittance inflow though formal channels further by encouraging migrants to use hundi instead to send back money.

However, upward movement of official exchange rates and 2.5 per cent government incentive on remittance sent through legal channels will help replenish FX reserves.

The floating exchange rate was reintroduced by the Bangladesh Bank in September last year.

"The government is also eyeing capital financing to manage the shocks, which are likely to help raise reserves."

The stock broker anticipated that Bangladesh will be able to sustain a positive growth of the Gross Domestic Product (GDP).

Though immediately after the release of the report the World Bank on Tuesday cut Bangladesh's economic growth forecast to 5.2 per cent from its earlier forecast of 6.1 per cent, Salim Afzal Shawon, head of research at the BRAC EPL, said the lower growth would not affect the economy much because many other countries would face similar situations this year.

The growth forecast has been revised due to a combination of factors -- elevated inflation, energy shortages, and tightening of the monetary policy.

The WB also trimmed its global growth forecast for 2023 from 3 per cent to 1.7 per cent, according to the latest edition of Global Economic Prospects.

Mr Shawon said the 5.2 per cent GDP growth would still be very positive while neighboring countries were struggling to keep the economic growth stable.

The loan from the International Monetary Fund (IMF) may help get more access to funding from multilateral lenders, said BRAC EPL.

There is a fear of another Covid wave to sweep over the world but BRAC EPL said Bangladesh is likely to manage it well as it did earlier and so it will face less economic disruptions.

The stock broker also ruled out any major market volatility for tensions surrounding the 2024 national elections.

There were uncertainties before the 2014 polls as the main opposition party opposed it under the government. But 2018 saw a weaker opposition party, which was why market sentiment was up pre-election.

The post-election market was disrupted because mega projects funding died up liquidity.

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