Bangladesh economic growth may slow to 7.8% in FY20: Fitch Solutions

Bangladesh's real economic growth may slow to 7.8 percent in the fiscal year 2019-20 – following deceleration in the growth of gross fixed capital formation and narrower net exports contributions. 

A steeper slowdown of growth in exports versus imports would likely result in a smaller net exports contribution to headline growth, said the report.

This projected growth rate is 0.4 percentage points below the government projection of 8.2 percent for the fiscal year 2019-20.

The World Bank, however, forecasted 7.2 percent growth for Bangladesh in the fiscal year 2019-20.

The global credit rating agency Fitch Solutions forecast this in its report published on Friday.

The current forecast is 0.3 percentage points higher than its November equivalent.

Exports likely to recover slightly, imports to remain soft
According to the report, Bangladesh's export growth weakened to 11.1 percent year-on-year in October 2019, from 12.9 percent year-on-year in March 2019; led by an 11.8 percent year-on-year contraction in garment exports, which accounts for over 90 percent of exports.

The weakening of exports growth has been attributed to the incomplete utilisation of production facilities on local holidays in the final months of the year.

However, the extent of export growth rebound is likely to be capped by a weak growth outlook in Europe and the US – which we forecast to come in at 1.7 percent and 1.8 percent in 2020, respectively, versus our estimate of 1.6 percent and 2.2 percent in 2019, added the rating agency in its prediction.

Credit growth continues to slow
Fall in credit growth also suggests a poor outlook for investment growth, generally, over the coming months.

The trend of weak loan growth is likely to persist over the coming months despite new rules mandating banks lower the lending interest rate. 

This could be attributed to the dismal state of asset quality in banking – which may have prompted banks to become slightly more cautious with their loan disbursements in an attempt to manage the pace of the increase in arrears, reads the report.

Fitch expects robust remittances growth to support stronger private consumption growth over the coming months. 

Additionally, the weakening of the Bangladeshi taka against the US dollar is likely to increase the value of remittances in taka terms – amid somewhat stable inflation at around 5.5 to 6.0 percent, which would support private consumption.

Inflation is forecasted to average 5.7 percent in FY20 and 5.8 percent in FY21.

Government consumption growth is also likely to pick up, given the government's efforts to further support its external sector and growth in general.

In partnership with the World Bank, the Bangladesh government launched a $10 million fund for 650 firms in four sectors – to be distributed over three years – on January 5, to support exports.

Specifically, the fund aims to directly assist firms in: leather and leather goods, footwear, plastics, and light-engineering. 

Additionally, the government's pursuit of mega infrastructure projects should support growth in general.

However, headline growth is likely to receive support from stronger private and government consumption growth, it added in their forecast.

We are sceptical about the actual timeline to complete these projects, but continued progress on these projects should nonetheless support headline growth, it said.