The Bangladesh Bank (BB) sees the near-term economic outlook of the country as fairly good despite some downside risks including negative impact caused by flood and other natural calamities.

“… The near-term economic outlook remains mostly favourable mainly because of the potential of strong recovery by all major sub-sectors of the economy and the unprecedented resilience of the farmers and non-farm producers to face adversities under difficult situations with support from the government,” the central bank says in its Quarterly for July-September 2007, released Wednesday.

However, a number of downside risks also remain that include the maintenance of reasonable socio-political stability, possible adverse impact of phasing-out of restrictions on textile exports of China imposed by the United States, incidence of natural disasters, and the high level of commodity and oil prices in the international market, the quarterly added.

The developments in the real sector during the first quarter (Q1) of the current fiscal 2007-08 (FY08) generally hold that real sector growth is likely to be moderated somewhat if the present trend continues.

“The near-term growth outlook, however, is likely to improve with measures taken by the government to address the emerging constraints,” the quarterly said, adding that there seems to exist persistent inflationary pressure in the economy emerging from the rise in prices of both food and non-food commodities despite various measures taken by the government.

Significant risk of potential inflationary pressure in the country’s economy will persist in the near-term and the policies should continue to involve both demand and supply side measures, especially to increase domestic supply responses, the quarterly said on the basis of developments in the period.

Given the recent developments in the country’s real sector and current trends and near-term projections of prices in the international commodity market, recurrent floods, and the unfolding domestic and external shocks, it is apprehended that the targeted rate of inflation would be exceeded in FY08, the BB predicted.

Currently, the central bank is pursuing a monetary policy stance that is conducive to high economic growth and reasonable price stability.

The BB has been encouraging increased flow of private sector credit to various productive sectors of the economy including agriculture, small and medium enterprises (SME), and women entrepreneurs in recent months given its policy priority to support high economic growth.

The central bank has also taken initiatives to maintain the par value of local currency (Bangladesh Taka) in the foreign exchange market so that the pressure of import-driven inflation remains under control, the quarterly noted.

The growth momentum of the overall economy somewhat slowed down during the first quarter of FY08 compared with the corresponding quarter of the previous fiscal due to slow growth in agriculture, relatively depressed growth of manufacturing sector due to higher input cost at the import level and persistent high oil prices in the international market.

However, several indicators, such as disbursement of agricultural and industrial credit; import of industrial raw materials and intermediate goods; and inflow of workers’ remittances indicate that the depressed growth in some major sub-sectoral activities in the Q1 of FY08 is likely to rebound shortly and the overall growth performance would move toward its trend level in FY08, the quarterly added.

The real gross domestic product (GDP) growth in FY07 has been estimated at 6.5 per cent, which is slightly lower than 6.6 per cent achieved in FY06.

The target growth rate of GDP for FY08 has been put at 7.0 per cent. However, growth momentum seems to have somewhat moderated during the Q1 of FY08 relative to that in the Q1 of FY07, according to the quarterly.