Growth forecasts: ADB vs the Budget
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.