Economy still in contraction mode

Economic activities picked up in August compared to the month prior but could not recover from the trend of contraction that took hold in July, when the overall business environment deteriorated in the face of deadly protests, according to the latest Bangladesh Purchasing Managers' Index (PMI).

The overall PMI rose 6.6 points to 43.5 in August from 36.9 the month prior, according to a press release yesterday.

A PMI reading above 50 indicates expansion of economic activities, the mid-point reading of 50 means 'no change', and anything below that represents contraction.

According to the latest PMI, the manufacturing sector recorded an increase of 13.6 points to reach 47.7 in August, indicating continued contraction despite general improvements

The Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, and Policy Exchange Bangladesh (PEB) prepared the index, which is based on data compiled from monthly surveys of over 500 private sector enterprises.

"This latest PMI reading can be attributed to contraction readings posted by key sectors of agriculture, manufacturing, construction, and services," said the statement issued by the MCCI and the PEB.

"While still in contraction mode, with a reading below 50 indicating overall slowdown, the August PMI indicates improvements in the general economy whilst the interim government works tirelessly to rebuild political stability and ensure normal business operations across sectors following the fall of the Awami League regime."

The MCCI said the index fell by 27 points in July, hitting a record low of 36.9 due to widespread unrest and extreme measures taken by the previous government before its eventual downfall.

"Still, we are in contraction mode though overall activity increased in August," said M Masrur Reaz, chairman of PEB.

According to the latest PMI, the manufacturing sector recorded an increase of 13.6 points to reach 47.7 in August, indicating continued contraction despite general improvements in new orders, new exports, imports, supplier deliveries, factory output and order backlogs compared to the previous month.

After six months of continuous expansion before July, the agriculture sector recorded 38.7 in August, reflecting a 3.3-point improvement.

However, construction activities did not gain steam. The overall construction index fell at a faster rate, deteriorating by 5 points to 40 in August.

"The sector posted a faster contraction in the indexes of new business and construction activity. But the input cost and order backlog indices also remained on the expansion track, indicating a poor environment for construction activities," the MCCI said.

On the other hand, the services sector improved in August.

"Although all sectors posted contraction readings for two months straight, there were slight improvements in manufacturing, agriculture and service sectors," the MCCI said.

"Companies are cautiously optimistic of the economic outlook as the future business index continues to record expansion readings for all key sectors of the economy, although at a slower rate for key sectors compared to the previous month."

MCCI Secretary General and CEO Farooq Ahmed said although there were a few weeks of stability after the mass uprising that overthrew the Awami League government on August 5, business operations were hampered by various instances of unrest that led to the closure of many factories.

"Recovering completely from the economic turmoil noticed in the month of July however, will require strict restoration of law and order and political stability to keep factories running."

Reaz said manufacturing, retail and other business activities improved although there is still labour unrest in many areas.

"However, it remains to be seen whether the economy can come out of the contractionary phase," he said.