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Will China's property slowdown affect Bangladesh and Asia's overall economic growth?
Meraj MavisPublish : 18 Oct 2023, 20:19
The International Monetary Fund (IMF) on Wednesday said China's economic growth will be a major factor in overall growth in Asia, and Bangladesh too will be affected by this.
The IMF reduced Bangladesh’s GDP growth forecast for FY24 and FY25 to 6% and 6.6% respectively, in a report released on Wednesday.
In April this year, the IMF had projected a 6.5% economic growth for Bangladesh in FY24 and 6.6% for FY25.
According to the IMF's latest report, Regional Economic Outlook for Asia and Pacific, which was released on Wednesday, the global lender also lowered China's growth.
The world's second-largest economy is expected to expand by 5% this year and 4.2% next year, down from 5.2% and 4.5% in the IMF's April forecast, the institution said in a regional economic outlook report.
Hence, by default as an Asian country, Bangladesh will also be affected by that.
Regarding China's growth fall and its effect on the South Asian economy, Krishna Srinivasan, director of the Asia and Pacific Department at IMF, on October 13 said: “What we have found is that when Chinese growth declines by 1 percentage point, on average other economies growth declines by 0.3 percentage points over the medium term.
“So, it's even more important for Asian economies because intraregional trade in Asia is more than 50% and a large part of that is, you know, China. So, China is a clear nucleus in this.
And so, China slows down, countries which have close linkages with China will slow down more. So that's the impact, but overall, 0.3 percentage point on average over the medium term for a 1 percentage point decline in Chinese growth."
The World Bank also lowered its projection for Bangladesh's GDP growth projection to 5.6% from 6.2% projected in April earlier this year.
However, a better picture is portrayed by the Asian Development Bangladesh (ADB).
In its economic outlook update in September retained its previous July projection of 6.5%.
But the Bangladesh government is more positive, with its official growth target being 7.5% for FY24.
Growth and inflation in Asia
IMF also predicted that growth in the region projected at 4.6% in 2023, an increase from 3.9% in 2022, and broadly as projected in the May 2023 Regional Economic Outlook.
The Asia and Pacific region thus remains a relatively bright spot compared to 3% expected global growth this year. Growth is projected to moderate to 4.2% in 2024.
Regarding inflation, the Regional Economic Outlook for Asia and Pacific stated that it was expected to fall in 2024 within central bank target ranges in most countries—a faster pace of disinflation than in other regions.
Inflation patterns suggest that in several low-income and emerging markets in the region (such as Bangladesh, Bhutan, Cambodia, Fiji, Indonesia, Malaysia, Nepal, Philippines, and Thailand), similar patterns are seen, although inflation increases are less striking compared with those in previous cycles.
It also said that in India, Maldives, and Vietnam, headline inflation has been only slightly higher than before the pandemic period, without clear troughs or peaks.
Economic activity in Asia and the Pacific remains on track to contribute around two-thirds of global growth in 2023, despite a challenging environment shaped by a global demand rotation from goods to services and synchronized monetary tightening.
What needs to be done
For the Asia and Pacific region, the IMF suggested that central banks should carry through with policies to ensure that inflation is durably at appropriate targets.
As tight monetary conditions can place strains on financial stability, strengthening financial supervision, vigilant monitoring of systemic risks, and modernizing resolution frameworks are critical.
Credible medium-term fiscal frameworks and consolidation could safeguard budgetary room for maneuver and debt sustainability, it further said.
Krishna Srinivasan also said: “We have in our report -- which is published next week -- we look at downside scenarios emerging from de-risking. And there we look at two elements. One is what we call as friendshoring, and the other is what we call reshoring. And both of these are scenarios where trade transactions are limited or trade flows between countries are limited. In both these situations, global growth will fall and China's –growth will also fall,” he explained.”
Where Bangladesh figures in all this
Regarding cutting down Bangladesh's GDP growth forecast, he said: “Let’s not forget that every country in the region, including Bangladesh, is feeling the economic challenges arising from the global environment. You have elevated commodity prices, you have a slowdown in external demand, and you have global monetary tightening, which continues. All these factors continue to weigh on Bangladesh's growth. And that's why we have growth at 6% in FY24, unchanged from FY23.”
“Now, the authorities have taken significant measures to address the macroeconomic challenges. The important part is to distinguish between the macro stability objectives and then the growth objectives. Here, they have tightened monetary policy stance to reduce inflation."
"They have allowed more flexible exchange rates while unifying the exchange rate system. And they've kept prudent fiscal policy. And at the same time, they have reprioritized spending to support the poor and the vulnerable. So, at this point in time, the effort is going towards macro stability. And in this context, a cut-off of 0.5 percentage points is pretty reasonable,” Srinivasan added.
