Tumultuous Jul-Sep sees GDP growth at 1.81% - lowest in 4 years

Bangladesh's economy has experienced a clear slowdown across its three key GDP components – agriculture, industry, and services – during the first quarter of FY25, as political unrest and natural calamities battered economic activity.

Provisional estimates from the Bangladesh Bureau of Statistics (BBS) show GDP growth at just 1.81% in the July-September period, its slowest pace in 15 quarters or nearly four years. 

This stands in stark contrast to the 6.04% growth recorded in the same period last fiscal year. The GDP size for the quarter stands at Tk12,66,574 crore, up from Tk11,70,313 crore a year ago.

The financial and insurance activities sector, under services, saw a 2.33% contraction, compared to 1.09% growth a year earlier and 4.02% two years ago. While the industry and agriculture sectors avoided contraction, their growth significantly decelerated.

Economists attribute the slowdown to multiple factors, including political turmoil that ousted Sheikh Hasina's government in a bloody uprising during July and August, disrupting economic activities across the board.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, told The Business Standard, "The upheaval affected agriculture, services, and industry to varying degrees. The August floods further compounded the damage, particularly to Aus production and Aman plantations, and urban areas like Noakhali were also hit hard."

Labour unrest in the garment sector, particularly in Ashulia and Gazipur, further dented industrial output. High inflation and political instability reduced consumer demand as people cut back on spending.

Hussain also pointed to potential "accounting resilience," a flaw in GDP calculation methods that prevents it from fully reflecting downturns. He said the ad hoc approach to measuring services GDP in quarterly estimates, contrasting it with the more straightforward methods used for industry and agriculture.

While the 1.81% growth underscores resilience, he said, "This figure might reflect an inherent flaw in how we calculate GDP, rather than actual economic stability."

Political neutrality in GDP reporting, a significant shift from previous trends, has also emerged, with experts suggesting that under the previous government, growth figures might have been artificially higher.

Growth rates varied across sectors in the first quarter of the current fiscal year. The agriculture sector recorded its lowest growth of 0.16% in Q1 FY25, compared to 0.35% in Q1 FY24, according to data released today (6 January).

The industrial sector grew by 2.13%, significantly lower than the 8.22% growth in the same period a year ago. The service sector's growth at constant prices was 1.54%, down from 5.07% in Q1 FY24.

Meanwhile, food inflation eased to 12.92% in December from 13.8% in November, reducing general inflation to 10.89% from 11.38%.

What businesses say

Mostafa Kamal, chairman and managing director of Meghna Group of Industries (MGI), pointed out the adverse effects of political unrest on GDP growth and business activities during the quarter. He said that private sector credit growth in November 2024 dropped to 7.66%, marking a 3.5-year low.

Also, high inflation significantly reduced consumption among fixed- and low-income groups, a trend reflected in MGI's declining sales. Despite these challenges, Kamal expressed optimism, saying that GDP growth will likely rebound in the next quarter.

Abdullah Hil Rakib, managing director of Team Group, told TBS that quarterly GDP growth decreased as political instability in July and August disrupted factory production.

"Many RMG industries in the Ashulia and Gazipur belt had to rely on subcontracting to meet targets, shipping goods via air freight, or accepting discounts," he said.

"At the end of the day, export growth bounced back in the second quarter. However, most exporters are still not in a strong position due to rising costs," he added, noting that increased worker wages have significantly impacted overall expenses.

Rakib hoped their efforts would help boost GDP growth in the coming quarters.

Speaking to TBS, Shams Mahmud, former Dhaka Chamber of Commerce and Industry president, said, "The latest GDP figures should be seen as an early warning for policymakers, signalling the need to get our house in order."

He noted that the private sector has been conveying its concerns to the government for the past two years, but these issues have not been addressed proactively, leading to squeezed growth. "Energy security, law and order, and taxation policies need urgent attention," he added.

Mahmud also emphasised that, without necessary reforms and improvements in security, law and order, and energy supply, policies are being implemented based on IMF prescriptions without considering the realities of the business landscape.

He warned that export growth will not lead to reinvestment or spillover effects, as extra earnings will likely go toward repaying high borrowing costs, stifling new investment.

"The new VAT policy and turnover tax will directly impact consumption, further squeezing the economy," he concluded. "We sincerely hope the government, with the support of the business community and the general public, takes this data seriously and takes necessary steps to reverse this trend."