Some scary numbers

Posted in economics by jrahman on April 1, 2009

Unless you’ve just come back from outer space, you’d know that we’re in the middle of the worst recession in our lifetime.  Over the next few weeks, in the lead up to the budget in May, I plan to post a few notes on the economic situation facing Bangladesh.  This is the first installment. 

The World Bank’s latest forecast has the Bangladeshi economy growing by 4.5% in 2008-09 and 4% in 2009-10.  The median of blue chip private sector forecasts has the economy growing by 4.4% this financial year, and 4.6% next. 

To put these numbers into context, in 2007-08, GDP grew by 6.2% — fifth straight year of 6% plus growth.  Since 1994-95, GDP growth has topped 4.5% in every year but one (2001/02 — the dot com and 9/11 recession).  And the current Poverty Reduction Strategy aims for a GDP growth of 7.5%. 

So these forecasts are pretty negative.  But it’s easy to show with some quick-and-dirty back-of-the-envelop calculation that under reasonable assumptions, the GDP growth for 2008-09 or 2009-10 could turn out to be as low as 3.6% — lowest rate since 1990-91 (when we were buffeted by the first Gulf War, anti-Ershad uprising, and a devastating cyclone). 

Let’s begin with a sectoral breakdown of the economy. 

In 2007-08, the agriculture sector accounted for about a fifth of our GDP.  In the 18 years that I have comparable data for, this sector grew by 3.2% a year.  PRSP aims for a growth of 3.7% a year.  Last year the growth was 3.6%. 

Let’s assume that the nature is kind to us.  According to the Centre for Policy Dialogue’s election eve State of the Economy Report, to achieve the PRSP target, the new government should ensure supply of agricultural inputs to the farmers in appropriate quantity and in appropriate time, and maintain adequate flow of agricultural credit.  Since the Agriculture Minister is noted for her experience and ability, let’s assume that all this is done, and the PRSP target is met for agriculture

  • This would then mean the agriculture sector adds about 0.8 of a percentage point to GDP growth.

Let’s move on to the industry sector, which made up about 30% of our economy last year.  About three-fifths of the industry sector is manufacturing, which has grown by an annual average rate of 7.3% in the past 18 years.  Across the world, the recession has resulted in sharp falls in industrial productions — at rates not seen since the 1930s.  Let’s assume that our manufacturing doesn’t fall, but doesn’t grow either.

What else is in the two-fifths of the industry sector?  About 30% of the industry sector is construction, with the rest nearly evenly split between mining and utilities.  Let’s assume these industries grow at their average rates of the past 18 years.

  • This would then mean the industry sector grows by 3% and adds about 0.9 of a percentage point to GDP growth.

Finally, there is service sector, accounting for about half of our GDP. 

Nearly 30% of the services sector is wholesale and retail trade, which have grown at a rate of 6.2% a year since 1989-90.  However, in recent years, trade sector has seen much faster growth, driven partly by the remittance inflow.  As the global recession will hurt our remittance, let’s assume the 1990s growth rate of 5.7% for trade.

Social services, which include health and education, account for a quarter of all services.  These services too have seen strong growth in recent years.  Again, let’s assume the 1990s growth for social services.  Let’s also assume the same for transport and communication, and tourism (making up a fifth of services collectively) for similar reasons.

Finance, property and business services collectively account for another fifth of services.  It seems reasonable to view these sectors most vulnerable to the global credit squeeze.  On the other hand, we are not as linked with the world as many other countries, so perhaps we wouldn’t suffer a contraction?  Let’s assume that finance, property and business services don’t grow.

Finally, let’s consider public administration and defence, which account for about 5% of all services.  This sector has seen strong growth (7.8% a year) in the past half decade.  Let’ s asume this strong growth continues for the government sector.

  • This results in the service sector growing by 4% and adding 2 percentage points to GDP growth.

This adds up to the 3.6% growth, lower than the WB or private sector forecasts.  I assume the official forecasts must see some growth in our manufacturing or finance sectors.

Tagged with:

6 Responses

Subscribe to comments with RSS.

  1. Unheard Voice » Some scary numbers said, on April 2, 2009 at 9:29 am

    […] (More at Mukti) […]

  2. hijibijbij said, on April 2, 2009 at 5:55 pm

    Nice back-of-the-envelope analysis Jyoti. Would you mind citing the sources for your data?

  3. Jyoti said, on April 3, 2009 at 5:32 am

    All data are from the CEIC Asia database.

  4. […] slowdown is evident.  But considering that this time last year, I was fearing a growth rate of 4% or less, if it comes to pass, ADB’s 5.5% won’t be too bad an outcome at all.  In fact, if […]

  5. […] the AL government came into office, I worried about the fallouts of the global financial crisis on the Bangladeshi economy, but felt optimistic […]

  6. […] treatment?  By the end of the 2000s, the global recession emerged as the biggest risk (something I worried about too).  Meanwhile, wage hikes of 2006 and 2010 were also posed as threats to the industry.  Now we […]

Comments are closed.

%d bloggers like this: