Bangladesh is significantly prone to many of the
recessionary risks if appropriate steps are not taken to diversify the export
products and basket and increase remittances through the formal channels
although the country may not go into recession.

The International Chamber of Commerce-Bangladesh (ICCB) in its latest
editorial today also highlighted the importance of taking appropriate
measures to streamline public sector expenditures, rationalise mega
infrastructure and other projects and undertake effective financial sector
reforms.

The global economy surpassed US$100 trillion for the first time in 2022, but
is likely to stall in 2023 due to last year’s multifaceted shocks and
challenges.

The three main global growth engines — the US, Europe and China– will
experience slower growth in 2023, according to the editorial.

In Bangladesh, according to experts, a major effort should be directed toward
strengthening macro-prudential regulations and building foreign exchange
reserves.

Fiscal measures should carefully regulate the withdrawal of financial support
measures while ensuring consistency with monetary policy objectives.

A credible medium-term fiscal plan should be in place, among others, to
provide targeted relief to vulnerable households.

The supply-side measures should aim to ease labour-market constraints,
increase labour-force participation, reallocation of displaced workers and
reduce price pressures.

Effective policy coordination will be important in increasing the food and
energy supply. For the energy sector, policies should accelerate the
transition to low-carbon energy sources and introduce measures to reduce
energy consumption to face climate change, according to the editorial of the
ICCB.

Higher-than-expected and persistent inflation tightened financial conditions,
Russia’s war against Ukraine, the lingering COVID-19 pandemic and supply-
demand mismatches have further slowed the global economic outlook.

Russia’s conflict with Ukraine not only threatens the lives of millions of
Ukrainians but has also accelerated a series of cascading and interconnected
global crises in food, fuel, and energy, resulting in rising costs of living
further adding inflationary pressure in many countries.

In addition, extreme weather conditions due to climate change pose downside
risks to the global economic outlook, and increasing energy prices also
hamper the path toward a green transition, said the ICCB.

The persisting global challenges have caused rising debt vulnerabilities and
hampered the way toward recovery, which further impacted vulnerable groups,
especially low-income and developing countries.

The largest slowdown of global trade in generations, significant decline in
FDI, private capital flows and remittances are also contributing to the
global recession.

The likely recession in the developed world will spur capital outflows from
the developing countries forcing them to devalue their currencies, thus
adding to rising inflation and consequently increasing interest rates.

According to a recent comprehensive World Bank (WB) study, the risk of the
global recession in 2023 has risen sharply as central banks across the
countries have hiked interest rates in response to inflation.

Yet the indications so far show these policy actions may not be sufficient to
bring global inflation back to normal.

Indications are there that global consumer confidence has suffered a sharp
decline. It is apprehended that unless supply disruptions and labour market
pressures subside, the global core inflation rate may remain high.

At the global level, the key will be to strengthen global trade networks to
alleviate supply bottlenecks.

Now is the time to promote a rules-based international economic order that
prevents the threat of protectionism and fragmentation that would further
disrupt trade networks, said the ICCB.

In line with current global economic challenges, G20 members have reaffirmed
their commitment to well-calibrated, well-planned, and well-communicated
policies to support sustainable recovery and mitigate scarring effects to
support strong, sustainable, balanced, and inclusive growth.

In this regard, the G20 has reaffirmed the importance of macro-policy
cooperation to preserve financial stability and long-term fiscal
sustainability and safeguard against downside risks and negative spillovers.

While the central banks should continue with their efforts to control
inflation to help anchor inflation expectations and reduce the degree of
monetary tightening, concerted actions are needed by other policymakers as
well.