ADB forecasts gradual recovery for Bangladesh economy

Bangladesh's gross domestic product is forecast to expand by 4% in fiscal year 2026 and 4.7% in FY2027, rising from an estimated 3.5% in FY2025, according to the Asian Development Bank's (ADB) latest Asian Development Outlook, released today.

The revised growth outlook reflects a rebound in consumption and investment as political uncertainty abates following the general election. While temporary supply chain disruptions, stemming from conflict in the Middle East, weighed on economic activity in the final quarter, these effects are expected to diminish.

ADB Country Director Hoe Yun Jeong noted that Bangladesh faces a challenging economic landscape shaped by global uncertainties, domestic structural constraints, and pressures on external and financial sectors. He said the new government's reform agenda presents an opportunity to enhance macroeconomic stability, restore private sector confidence and foster economic recovery. With prudent policies and sustained reforms, the economy is positioned to reinforce resilience and return to a more inclusive growth trajectory, he added.

Inflation is expected to remain elevated at 9% in FY2026, despite some moderation, reflecting persistently high global energy prices and ongoing supply constraints. It is forecast to ease to 8.5% in FY2027 as external shocks recede and domestic supply conditions improve.

The current account balance is projected to post a modest deficit of 0.5% of GDP in FY2026, widening marginally to 0.6% in FY2027, driven by stronger import demand and a broader trade gap. Remittance inflows are likely to remain resilient in the near term, despite ongoing geopolitical tensions in the Middle East.

The report anticipates moderate growth in consumption and investment, underpinned by robust remittance inflows and election-related public expenditure, as well as government initiatives to stimulate investment and facilitate business operations. On the supply side, services are expected to recover, driven by improved household purchasing power, increased social protection allocations, and ongoing financial sector reforms. Agricultural output is projected to normalise, contingent on favourable weather and sustained policy support. Industrial activity is also expected to gain traction, supported by export growth, easing supply constraints, and a government focus on infrastructure and energy security.

Nevertheless, the ADB cautioned that downside risks remain considerable, particularly if the conflict in the Middle East endures. Disruptions to global energy markets, shipping routes and supply chains could drive up oil and gas prices, intensify domestic inflationary pressures, and complicate efforts to contain inflation, thereby limiting macroeconomic policy flexibility.

Elevated energy prices could widen the fiscal deficit, particularly if energy-related subsidies rise or if the pass-through to consumers is delayed. External sector pressures may intensify should exports and remittances weaken amid subdued economic activity in key Gulf markets, while higher import costs and freight rates could further strain the current account in an environment of tight external liquidity.

The report concludes that the overall balance of risks remains tilted to the downside, underlining Bangladesh's vulnerability to external shocks amid fragile macroeconomic conditions. Climate-related shocks remain an ongoing risk.