GDP growth to plunge to 33-year low this year

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

But if the International Monetary Fund's latest projection is considered, 2021 definitively promises to be a better year, with GDP growth set to be 9.5 per cent.

This year though, the GDP growth would 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 would be between 2 per cent and 3 per cent this fiscal year, in a stunning decline from the 8.15 per cent logged in the last fiscal year.

The economy growth would fall further to 1.2 per cent to 2.9 per cent in the next fiscal year, said the WB's latest South Asia Economic Focus report, which was released on Sunday.

For Bangladesh, which clocked in the highest economic growth in Asia in 2019, it was a crushing blow, as the government was hoping to register 8.20 per cent GDP growth at the start of this 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 are based on fiscal years.

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

It is not 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 per cent and Nepal, with projected GDP growth of 2.5 per cent, would be ahead of Bangladesh in 2020. India would grow only by 1.9 per cent.

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

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

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

As a result of the pandemic, the global economy is projected to contract sharply by 3 per cent in 2020, much worse than during 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 gradually unwound, the global economy is projected to grow by 5.8 per cent in 2021 as economic activity normalises, helped by policy support.

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

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

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

Policymakers will need to implement substantial targeted fiscal, monetary and financial market measures to support the affected households and businesses.

Strong multilateral cooperation is essential to overcome the effects of the pandemic, including help to 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 will get some accounting assistance from the base effect of low growth in the case of Bangladesh and contraction in case of the global economy. 

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

First, there will be no second or third wave of outbreaks in the second 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 a second 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 effectiveness of the policy response is also debatable in contexts where governance is a major 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 is extreme uncertainty about the outlook and severe risks of worse than projected outcomes," he added.