Bangladesh fares better than low-income competitors, says IMF outlook
Lower labour costs and a more vertically integrated garment sector have enabled Bangladesh to gain market share this year in the large economies, compared to the situation of its low-income competitors.
According to the IMF outlook for Asia and the Pacific, released Thursday in Seoul, overall export volumes of Asian low-income countries (LIC) are likely to see only a slight decline in 2009.
“The exchange rate depreciation relative to the euro as a result of its US dollar peg also help the country gain market share,” it said mentioning the case of Bangladesh.
“It is much better performance than in the newly industrialised economies and ASEAN-4, where volumes are likely to be significantly down for 2009.”
After being hit hard by the global economic slump, Asia is now rebounding fast, stated the International Monetary Fund (IMF) in its Regional Economic Outlook for the Asia and Pacific Region.
The longer-term shifts in strategic sourcing by multinational corporations (MNCs) toward lowest-cost producers have benefited Bangladesh and Vietnam, allowing them to gain market shares, especially in the United States.
The outlook, however, said Cambodia’s garment exports appear to be suffering because of higher labour and utility costs, lower productivity, and lack of vertical integration.
In response to the global recession, Bangladesh announced and offered proactively stimulus package to increase capital and social spending, reduce tax and interest, and other government subsidies to designated sectors.
The outlook cautioned that the implementation of stimulus measures has been constrained by available financing and capacity limitations.
Positive growth in remittance flow is expected in Bangladesh as most of its migrant workers are employed in the Gulf Cooperation Council (GCC) countries.
Most Asian LICs are expected to record positive growth in 2009 and should see a further strengthening of activity in 2010 as global conditions continue to improve, the outlook said.
IMF forecasts suggest Asia will grow by 5.75 per cent in 2010–far higher than the 1.25 per cent predicted for the G-7 economies but well short of the 6.67 per cent average recorded for the region over the past decade.
“A strong rebound in exports is unlikely, given that some of the Asian LICs’ export products including agricultural goods and garments have low responsiveness to global demand changes.”
The outlook said establishing a robust recovery in the Asian LICs, however, will depend on their ability to maintain macroeconomic stability.
“The threats to stability are many: fiscal deficits are large, credit growth and inflation are high, and in some cases international reserves are low.”
Tighter monetary conditions would help rein in credit growth and alleviate emerging inflation concerns in Bangladesh, the outlook said.
The report said Asia’s outlook remains closely tied to the global economy and the key behind Asia’s recovery was bounced back from the sudden stop in global trade and finance at the end-2008.
“This has fuelled a rapid recovery in exports, boosting industrial production and overall GDP,” said the report.
In the wake of the global downturn, Asian government authorities swiftly deployed packages to boost public spending, reduce interest rates, and stabilise financial markets.
These measures were much larger than in previous crises, and in the case of the fiscal programmes, even larger, on average, than those introduced by the Group of 20 industrialised and emerging market countries.
“The vigorous reaction was made possible by Asia’s relatively strong initial conditions: in many countries, government fiscal positions were sounder, monetary policies more credible, and corporate and bank balance sheets sturdier than at any time in the past,” noted the report.
Kevin Brown of the Financial Times adds from Singapore under syndication service: The International Monetary Fund (IMF) more than doubled its forecast for Asian economic growth for the year and raised its forecast for 2010, reflecting a sharp improvement in the region’s prospects over the past six months.
In its latest Asia Pacific regional economic outlook, the fund forecast growth in gross domestic product (GDP) of 2.8 per cent for this year and of 5.8 per cent for 2010. In May, the IMF said growth would be just 1.2 per cent in 2009 and 4.3 per cent in 2010.
“The primary driver of Asia’s recovery has been a progressive return towards [normality] following the abrupt collapse in global trade and finance at the end of 2008,” the IMF said, also highlighting forceful monetary and fiscal stimulus programmes within the region. “Just as the US downturn triggered an outsized fall in Asia’s GDP because international trade and finance froze, now their normalisation is generating an outsized Asian upturn.”
Anoop Singh, the IMF’s Asia Pacific director, said the recovery was largely export based, adding that regional governments need to maintain caution because of the sluggishness of advanced economies. It forecast that 2010 growth would consequently remain below the 6.6 per cent annual regional average posted over the last decade.
“As we look ahead to the next decade, it is likely that private demand from advanced economies and the US is not going to be as strong as we had expected,” Mr Singh said. “This means that for Asia to retain its strong growth momentum, it needs to shift the drivers of recovery from an export engine more into domestic demand within Asia.”
The IMF said there had been “exceptional uncertainty” at the time of its May forecasts, which had now receded. However, it said risks remained that could weaken growth, including a premature exit from extraordinary monetary and fiscal policies.
“If signs of renewed external environment weakness were to arise, the positive feedback loop triggered in Asia could shift into reverse,” the report said, warning that renewed foreign risk aversion and weak demand could trigger capital outflows and induce companies to shed jobs.
In a slew of country upgrades published with the report, it raised growth forecasts for 2010 for Japan from 0.5 per cent to 1.7 per cent, for Australia from 0.7 per cent to 2.0 per cent, and for China from 7.5 per cent to 9.0 per cent. The forecast for South Korea was raised from 1.6 per cent to 3.6 per cent and for India from 5.6 per cent to 6.4 per cent.