Mukti

Growth forecasts: ADB vs the Budget

Posted in economics, macro by jrahman on July 2, 2012

Updated: 4 July 2012, 1213 BDT: Export growth chart over the fold.

The last post on the subject showed that the difference between the ADB’s and the government’s growth forecast is now at its widest in the last decade.  While the government expects the economy to accelerate sharply in 2012-13 (FY13) to 7.2% (the thick red line in the chart), the ADB expects a slowdown to growth of 6% (thick red dots). 

There seem to be two major reasons why the forecasts diverge — one explicit, and one implicit.

The explicit difference is in exports — the chart on the left.  The ADB expects exports to have grown by only 12% in FY12, which is then projected to slow to 10% — red dots in the chart.  The Budget is based on exports growing by 14.5% in both FY12 and FY13.

Who’s likely to be right?

Firstly, BBS says exports have grown by 25% in FY12, much higher than either the ADB or the government forecasts.  If that strong performance has flow on effects in the domestic economy then the government numbers will have better chance.

On the other hand, the ADB numbers are based on their relatively pessimistic (realistic?) views about the global economy.  The government expects the world economy to improve.  Will it?  Particularly relevant for Bangladesh is Europe, which is the largest export market.

Bangladeshi exporters proved remarkably resilient during the first wave of the global recession in 2008-09.  As the chart shows, exports grew at a much faster pace in recent years than was expected at the FY11 Budget.  Will it be the exporters once again to the rescue?

If exports have been the bright spot in the economy, then investment has been the disappointment. For the past decade, investment has been hovering around a quarter of the GDP — the chart on the right.  The current budget is based on an investment boom that will see its share of the economy rising to 38% by 2021. 

The thing is, two years ago the government was expecting a similar investment boom, which obviously never materialised. 

The ADB doesn’t give details about investment forecasts.  But their overall story implies that they do not think such an investment boom is likely.

Who knows what will happen later in a decade, but with the election approaching, FY13 will very likely not have an investment boom.

So, for the economy to accelerate, it will have to be exports.

——-

Reflecting on the comment below, this chart shows through the year growth in exports from Bangladesh, India and China.  Data smoothed by 3-month moving average.  Source: CEIC Asia.

7 Responses

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  1. Diganta said, on July 2, 2012 at 3:08 pm

    I think for last few months Bangladesh (and India) exports are falling. But, that should not be a long term trend, Bangladesh should be able to cut costs and come back with a bang.

    52% of Bangladesh exports is towards Europe (22% USA). If Europe goes into recession, then Bangladesh would be in trouble. There could be other troubles – such as EU trade concession for Pakistan or FTA with India – either of these could increase the competition for EU market.

  2. kgazi said, on July 3, 2012 at 9:00 am

    So, did BD govt show any reason for their high forecast, besides pre-election propaganda, or was it just an UN-educated guess ?

  3. jrahman said, on July 4, 2012 at 12:24 pm

    Kgazi, the government is more optimistic about exports and investment.

    Diganta, monthly trade data can be very volatile. The standard practice is to smoothen it with some statistical technique. For blog posts, three month moving average is fine. When you look at the through the year growth (ie May 2012 compared with May 2011), it’s clear that export growth has slowed in Bangladesh (and India, and China too — see the chart in the updated post). It’s very likely to be related to the euromess.

  4. kgazi said, on July 4, 2012 at 10:42 pm

    jrahman – the govt’s optimism has no justification besides hype.
    Lets assume there is no EU crisis, regional slowdown, or natural disaster. But even without any external factor, the govt has made NO progress internally that can justify their ‘optimism’. With gas, power and water shortage, decline in infrastructure, erosion of politics, transport crisis, and overall lack of confidence – ADB’s forecast is much more credible.

  5. What does the Fund say? « Mukti said, on July 14, 2012 at 7:16 am

    […] These reforms, the Fund claims, will boost investment, but much more modestly than what the government expects. […]

  6. […] The World Bank expects exports to grow by 5% in FY13, much slower than the double digit rates expected in June.  […]


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