Activities back, incomes not

We are going through an unprecedented time, which is economically troublesome.

Even if we accept the official GDP growth rate of 5.24 per cent in the last fiscal year, it means a decline from 8.2 per cent. When did we see such a steep decline in growth?

There has been a huge disruption to the livelihood of the workers, particularly those employed in the urban informal services and the export-oriented industries in the formal sector.

Surveys showed incomes of ordinary families dropped by 50 per cent to 80 per cent during April and May, the two months that saw the severest form of the pandemic.

Millions of jobs were wiped out overnight. The reverse migration the initial weeks of the pandemic has been unprecedented in the history of Bangladesh if we excluded what happened during the famine in 1974.

We are used to sending people abroad. This time, people returned in droves as their host countries closed borders and cut jobs.

The ever-bigger migration took place from urban centres to rural areas. Because of the sharpest drop in incomes and higher food inflation, it became so unbearable to people that they started to head to their home villages.

The poor have become poorer. The vulnerable groups have become even more vulnerable and slipped below the poverty line.

Headcount poverty rate was about 20 per cent in 2018, and it shot to as high as 42 per cent in December 2020.

Those who managed to stay above the poverty line came under financial strains. Their incomes squeezed, but their expenses did not.

On the upside, the sales of consumer durables such as washing machines, cooking utensils, microwaves and trimmers rose significantly. Home delivery saw a sharp rise in demand.

E-commerce firms said to have leapfrogged by three years, meaning the pace of expansion they were expecting to see by 2024 has already taken place in 2020 because of the demand.

There has been a surge in demand for digital services. Those who did not have internet connection have jumped on the digital bandwagon.

Bank deposits of more than Tk 1 crore skyrocketed between March and December as the rich were flushed with cash. This means the situation has improved for some people. This reminds us of a K-shaped recovery, which occurs when different parts of the economy recover at different rates, times, or magnitudes, following a recession.

After the lockdown was imposed, the economy came to a sudden halt. But when the restrictions were partially lifted, it did not return to its usual shape strongly.

But we can see some signs of gradual recovery. People returned to work. Employment has come back to close to the pre-pandemic level.

The Google Mobility Report shows that its benchmarks on mobility have exceeded the pre-pandemic level.

But in the case of incomes, we are yet to reach that level perhaps. Activities are back, incomes are not.

Income for the workers in the informal services sectors has recovered by around 60 to 70 per cent on average.

The indicators at the macroeconomic level also gave a message that there has been recovery.

Exports are recovering although it has not sprinted back to the pre-crisis level. The exports, however, were in the negative region even before the pandemic.

The growth is significantly negative in the case of import of capital machinery.

The expansion in the domestic collection of value-added tax, which is an indicator of consumption expenditure, is still weak. Income tax contributed most to the revenue collection.

Demand recovery is happening. But it is still below pre-pandemic benchmarks.

Another component of the demand is public expenditure. The outlay of the annual development programme fell in terms of money spent, not in terms of growth, during the July to January period compared to a year ago.

The government's borrowing has declined. What is more, the authorities repaid loans to the central bank. The borrowing target may fall behind the target this fiscal year.

The growth of investment and exports will bank on the return to pre-pandemic normalcy and how the global recovery plays out.

The global recovery is now a matter of time. The odds of another recession are slim because of the mass rollout of coronavirus vaccines in many countries.

Lockdowns have been reinstated in many countries in Europe because of the new variants. If the immunisation moves faster, the lockdowns will not last longer.

Now the question is: When will the economic recovery start taking hold?

My hunch is the global recovery will start making a turnaround in the third quarter. The less optimistic view is that it would begin growing in the fourth quarter.

The world would not just stop by lifting the growth to the pre-pandemic level. There might be a very strong growth in Europe and North America for a year or two.

If global growth roars, Bangladesh will not be left behind.

The author is an economist.