"If the process continues, it will threaten the macro-economic stability, which represents the encouraging aspect of the economic situation in the recent years," the chambers said in its review of Economic Situation of July-September 2006.

However, the review said the macro-economic environment was stable during the first quarter of the current fiscal despite the negative shocks from the labour unrest in the garment sector and agitations in different areas of the country over the shortage of electricity.

The macro-economic trends in the major sectors indicate that the over-all state of the economy remains steady notwithstanding the fact that the growth rate was lower compared to those of the previous two quarters, it said.

"During the review quarter, the economy came under considerable strains caused by higher costs of petroleum products, widespread agitations in the readymade garment sector and inflationary pressure though increased remittances and higher export earnings provided a favourable perspective," the MCCI said.

It said shortfall in the revenue collection by as much as 25.17 percent in the first quarter of the current fiscal needs to be viewed more seriously as it is one of the major reasons for which the government has been borrowing from the banking sector. "Already the government's borrowing from the banking sector in the first three months of this fiscal year reached an alarming level."

"Perhaps it is time to warn the finance ministry that this trend must be stopped; otherwise, credit flow to the productive sectors including trade and industry will be upset. At the same, the all-out focus to contain inflation will achieve little," the chamber observed.

In the financial sector, the Bangladesh Bank maintained its conservative approach to monetary policy issues, as it sought to preserve the foreign exchange market stability and contain the inflationary pressure.

A worrisome development during the quarter was a sharp increase (48 percent) in government spending. The government's borrowing from the banking sector stood at Tk 2102.6 crore as compared to Tk 524.43 crore in the same period of the previous fiscal, showing a growth of 301 percent.

During the quarter, the chamber said, the foreign exchange market benefited from increased remittances and higher export earnings while the average inflation rate was 6.99 percent in August of the review quarter compared to 7.13 percent in Q4 of FY 06, 7.07 percent in Q3FY06, 6.91 percent in Q2FY06 and 6.78 percent in Q1FY06.

In August of Q2FY 07, point to point inflation was 6.67 percent compared to 7.54 percent in Q4FY06. "Thus, according to the latest available data, the rate of inflation slightly declined in the review quarter."

The MCCI said the recovery in the agriculture sector continued in the review period. However, the chamber said unfavourable weather conditions affected cultivation of both paddy and jute.

The growth of industrial sector during the quarter was much lower than its average growth for the last three quarters.

The chamber said within the services sector, hotels, restaurants and shops received some impetus from the growth of the communication and trade sub-sectors, but their performance declined due to intermittent load shadings, which forced them to close down their business during the peak hours.

It said the trade balance recorded a lower deficit of US$ 90 million in July of FY07 compared to the deficit of $ 116 million July of FY06. "The improvement in the trade balance occurred due to a higher relative growth of exports than import payments," the MCCI said.