Bangladesh: Country Economic Forecast: 15 Feb 2012

Bangladesh remains fairly resilient to the global headwinds. GDP growth accelerated to 6.7% in the 2010/11 fiscal year, the fastest pace since the early 1970s, led by industrial output as exports grew strongly. But with export growth now hit by the weakening world economy and fuel import costs still very high, GDP growth is set to slow to around 6% in 2011/12. Growth will also suffer from energy and raw material supply constraints, which lifted inflation into double digits in 2011 and have rapidly eroded the current account surplus. Investment in power supply facilities should reduce the incidence of power shortages in 2012, but only by significantly boosting oil imports as argument on contract terms delays significant expansion of offshore gas. Although down from a peak of 12% in September, inflation was 11.6% in January, forcing monetary policy to remain tight. With export demand faltering (the EU takes over 50% of Bangladeshi exports), oil imports rising and workers' remittances slowing, the current account moved into deficit in November and is forecast to post a small deficit in 2011/12 overall. This will be partly offset by rising FDI, with India emerging as a key source, but reserves were down to US$9.4bn at end January from a peak of US$11.3bn in April 2011, and the BDT fell 13% against the US$ in 2011. Fears of renewed political uncertainty in the run-up to the next elections in 2013 were heightened by recent army claims that it had foiled a military coup attempt in December.