GDP growth to plunge to 33-year low this year

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There is absolutely no denying that 2020 is a write-off for the high-flying Bangladesh economy, shot right down to the ground by the novel coronavirus.

If the International Monetary Fund's latest projection is known as, 2021 definitively promises to be an improved year, with GDP growth set to be 9.5 per cent.

This season though, the GDP growth will be 2 per cent growth, the lowest since 1988, said the Washington-based lender in its biannual World Economic Outlook (WEO), published on Tuesday.

It comes four days after the World Bank forecasted that the country's GDP growth will be between 2 % and 3 per cent this fiscal year, in a beautiful decline from the 8.15 % logged within the last fiscal year.

The economy growth would fall further to at least one 1.2 % to 2.9 per cent within the next fiscal year, said the WB's latest South Asia Economic Focus report, that was released on Sunday.

For Bangladesh, which clocked in the best economic growth in Asia in 2019, it was a crushing blow, as the federal government was hoping to join up 8.20 per cent GDP growth in the beginning of the fiscal year.

Finance Minister AHM Mustafa Kamal though remains sanguine, insisting that the economy would grow by at least 6 per cent in fiscal 2019-20. 

The IMF's growth projections are based on calendar years and those of the WB derive from fiscal years.

The projection from the IMF is a sharp decline from its previous forecast manufactured in its World Economic Outlook report in October this past year when the lender said Bangladesh's economic growth will be 7.4 per cent in 2020.

It isn't only Bangladesh that has been bearing the brunt of the deadly novel coronavirus.

In South Asia, only Bhutan, with a forecasted growth rate of 2.7 % and Nepal, with projected GDP growth of 2.5 %, would be before Bangladesh in 2020. India would grow only by 1.9 %.

Pakistan would contract by 1.5 % and Sri Lanka by 0.50 %. The economies of Afghanistan and the Maldives will also contract.

In Southeast Asia, Vietnam, the Philippines and Indonesia are expected to remain positive, growing 2.7 %, 0.6 % and 0.5 per cent respectively. Thailand is likely to contract by 6.7 and Malaysia's growth sometimes appears to fall to minus 1.7 per cent.

"It is very likely that year the global economy will experience its worst recession because the Great Depression of the 1930s, surpassing that seen through the global financial crisis a decade ago," said IMF Chief Economist Gita Gopinath in the foreword to the report.

Due to the pandemic, the global economy is projected to contract sharply by 3 % in 2020, much worse than through the 2008-09 financial crisis, the WEO said.

It assumes that the pandemic will dissipate in the second half of 2020 and containment efforts can be slowly but surely unwound, the global economy is projected to grow by 5.8 per cent in 2021 as monetary activity normalises, helped by policy support.

A partial recovery is projected for 2021, with above-trend growth rates, however the level of GDP will stay below the pre-virus trend, with considerable uncertainty about the effectiveness of the rebound, Gopinath said.

Effective policies are vital to forestall worse outcomes, it said.

The immediate priority is to support the contagion, especially by increasing healthcare expenditures to fortify the capacity and resources of the sector.

Policymakers should implement substantial targeted fiscal, monetary and financial market measures to support the influenced households and businesses.

Strong multilateral cooperation is essential to overcome the effects of the pandemic, including help financially constrained countries facing twin health and funding shocks and for channelling aid to countries with weak healthcare systems, the IMF said.

"This will hit hard Bangladesh's exports, remittances and foreign direct investment," said Zahid Hussain, a former lead economist of the WB's Dhaka office.

The recovery in 2021 are certain to get some accounting the help of the base aftereffect of low growth regarding Bangladesh and contraction in the event of the global economy. 

The IMF appears to have made two rather heroic assumptions, according to the economist.

First, you will have no second or third wave of outbreaks in the next half of 2020. Second, the fiscal and monetary policy response globally, and presumably in Bangladesh, will be effective. 

The experience of Japan, Singapore and, of late, China makes the assumption of Covid-19 fading and not coming back with another and third wave highly questionable.

Also, history provides no assurance that the policy response internationally will be well coordinated.

"Donald Trump's suspension of funding for the World Health Organisation yesterday makes this assumption even more questionable."

The potency of the policy response can be debatable in contexts where governance is a significant concern.

"We all hope and pray that the IMF is right about a sharp recovery in 2021. In all fairness, the IMF does caution that there surely is extreme uncertainty about the outlook and extreme risks of worse than projected outcomes," he added.
Source: https://www.thedailystar.net

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