Bangladesh Economic Review

Topics: Inflation, Macroeconomics, Economics Pages: 40 (7602 words) Published: March 23, 2013

[The economy of Bangladesh has successfully tackled the contagion effect of global economic crisis and managed to maintain a sustained growth. According to a provisional estimate, the economy has posted a growth of 6.66 percent in FY2010-11 against that of 6.07 percent in FY2009-10. This performance is mainly attributable to the sustained growth in agriculture sector coupled with recovery of growth in industry sector and the satisfactory performance of service sector. During this period, higher growth in revenue mobilisation and prudent budget management helped maintain macroeconomic stability and discipline in fiscal front. Furthermore, the increasing global demand for goods and services after recovery has helped achieving higher growth in foreign trade, while soaring global food and non-food prices has created inflationary pressure in the country. Alongside adopting various administrative and structural measures, monetary policy instruments have also been used to reduce the inflationary pressure. Moreover, slower growth in remittance inflows and higher import demand due to massive investment in infrastructure sector including the power sector, the current account balance and exchange rate was under pressure during the last quarter of FY2010-11. However, this situation did not emerge as a big challenge to the macroeconomic stability. The foreign exchange reserve remained steady at above US$ 10 billion during this period. Overseas job replacement and remittance inflows rebounded since January 2011. It is expected that, improved infrastructure and streamlined power sector would be conducive to domestic and foreign investment, which will lead the country to the higher growth trajectory.]

Global Economic Scenario
The world has come out of the recession of 2007-2009 stronger than anticipated. However, the recovery is marked by different speeds in different regions of the world. The consolidation of the global recovery continues in two paces. In advanced economies, the recovery has been less than expected coupled with huge fiscal imbalances, mounting public debt and increased unemployment. In addition, the sovereign debt crisis in the periphery of euro area has created downside risks in the process of recovery. While the emerging and developing economies have recouped from the slowdown during global downturn, there has been inflationary pressure in these economies, and there were some signs of overheating driven in part by strong capital inflows. Against this backdrop, the World Economic Outlook, October 2011, showed a downward revision of global output in 2011 and 2012 around half a percentage point to 4 percent from April 2011 Outlook. After the 3.1 percent rebound in 2010, the output in advanced economies was expected to grow by 1.6 percent and 1.9 percent in 2011 and 2012 respectively, lower by 0.7 to 0.8 percentage point compared to April 2011 projection. The output growth in emerging and developing economies was expected to grow by 6.4 percent in 2011 and 6.1 percent in 2012, slightly lower than earlier projection. The developing Asia’s economies proved their resilience in the face of a tremendous external shock and are expected to grow in the neighbourhood of 8 percent in 2011 and 2012. Despite global recovery, the inflationary pressure remained subdued in advanced economies due to low levels of capacity utilisation, while inflationary pressure was more intense in the emerging and developing economies. Again the recent surges in global oil and food prices were adding further  


inflationary pressures. Inflation in advanced economies was 1.6 percent in 2010, which was expected to pick up to 2.6 percent in 2011. On the other hand, inflation in emerging and developing economies was 6.10 percent in 2010, which was expected to pick up to 7.5 percent in 2011 due to domestic demand and induced foreign capital inflows alongside the price-hike of commodities like oil and food....
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