Investors looking for alternatives amid the global slump would do well to check out Bangladesh.
Exports rose to a record last month even as other regional economies reported continued declines, and economists say shipments will increase as Americans rush to buy cheap clothes. Bangladesh’s central bank forecasts inflation will slow and the World Bank predicts growth will accelerate to 6.7 percent this year, making it one of the world’s fastest-growing economies.
“Over the medium-to-long term, we are bullish on the growth prospects of Bangladesh’s industrial and export sectors,” Raphael Mok, Asia analyst at Fitch unit BMI Research, said by e-mail. “The country boasts a large and youthful population, as well as relatively low labor costs.”
As the world’s large emerging markets falter, frontier economies like Bangladesh and Vietnam are holding steady. Bangladesh’s increasing market share in the European Union and recovering U.S. demand shield it from China’s slowdown, while better demographics offer it an edge over other Asian nations.
Bangladeshis are most optimistic about their economic prospects in 2016 among more than 66,000 people polled across 68 countries, WIN-Gallup reported last month. Per capita incomes rose past $1,000 in 2015 and Prime Minister Sheikh Hasina targets a tripling to over $4,000 by 2021.
The positive view is driven in part by exports, which contribute about 20 percent to Bangladesh’s gross domestic product. Garments account for about 80 percent of overseas shipments and two-thirds of these go to the U.S. and European Union. The sector had temporarily seen a setback following a series of industrial disasters in the past few years.
Another factor boosting the outlook is relative political stability. Violent clashes early last year between Hasina’s ruling party and the main opposition was estimated to have cost the $187 billion economy more than $2 billion in losses.
“Stability has returned and chances of recurrence of the kind of instability experienced in the last half of 2013 and the first half of 2015 is very slim at least in the near term,” said Zahid Hussain, an economist at the World Bank. “There has been significant progress in improving compliance in the garment industry.”
While Bangladesh’s exports are on track to meet the government’s 7.2 percent growth target for the year through June, competition from Vietnam means Hasina mustn’t stop efforts to diversify from cheap garments, Hussein said.
Risks loom from a prolonged slowdown in the European Union—which buys 61 percent of Bangladeshi garments—and implementation of the Trans-Pacific Partnership would threaten the U.S. market, which purchases 20 percent of textile exports.
Tariffs on Vietnamese exports would fall to zero under the TPP, compelling Bangladesh to increase productivity. Vietnam’s workforce is estimated to have peaked in 2015, whereas Bangladesh’s is projected to peak in 2030, according to the World Bank.
Bangladesh’s inflation will ease to an average 6.07 percent at the end of the fiscal year through June from 6.2 percent in December, the central bank said this month as it cut interest rates to a four-year low to spur investment.
“Export growth is likely to get stronger as the year goes on, as global demand picks up and manufacturers continue to look at Bangladesh as a cheap alternative location for their factories,” said Daniel Martin, a Singapore-based economist at Capital Economics Ltd.