Global and energy shocks to weigh on Bangladesh economy

Bangladesh’s economy is facing renewed pressure from global geopolitical tensions and commodity market disruptions, with risks of elevated inflation, slower growth and mounting fiscal strain, according to Eric Robertsen, global head of research and chief strategist at Standard Chartered.

In an interview with The Daily Star, Robertsen said financial markets appear “overly optimistic” about a swift resolution of the ongoing Gulf tensions and the reopening of the Strait of Hormuz, a critical artery for global energy supplies.

If shipping resumes soon, it could take weeks or months for oil, gas and petrochemical supply chains to normalise, prolonging price pressures worldwide, Eric Robertsen said

He added that even if shipping resumes soon, it could take weeks or months for oil, gas and petrochemical supply chains to normalise, prolonging price pressures worldwide.

“Even when the Strait reopens, it will take time for exports to normalise and for supply chains to stabilise,” he said, adding that such shocks typically leave behind persistent economic damage across vulnerable economies.

Image

Naser Ezaz Bijoy

He explained that governments tend to follow a predictable policy response during commodity crises, starting with subsidies to cushion consumers and businesses, followed by price caps, rationing and, in some cases, more aggressive interventions.

“What we have seen in this crisis is that many economies, particularly in Asia, have moved through all these steps very quickly,” he said, adding that such measures come at a high fiscal cost.

“There will be a negative impact on fiscal balances as governments step in to support their economies,” he added.

Robertsen also flagged rising risks of stagflation -- a combination of high inflation and weak growth, particularly for emerging economies like Bangladesh.

“The inflation impact is immediate in a commodity shock, but the hit to growth comes with a lag,” he said.

Bangladesh has been witnessing persistently high inflation for the last three years.

“Higher energy prices reduce disposable income and investment capacity, which ultimately weakens demand,” Robertsen said.

He cautioned that central banks face a difficult balancing act in such an environment.

“If policy tightening happens too early or too aggressively, it could worsen the growth outlook,” he said.

However, he noted a key relief factor in the current crisis: the absence of a sharp appreciation of the US dollar.

“This has not turned into a currency crisis, which is extraordinarily good news for central banks,” he said.

About the global outlook, Robertsen highlighted four key risks for emerging economies: higher inflation, weaker growth, potential policy missteps and deteriorating fiscal balances.

“For the next two quarters, there is a need to build a higher risk premium into both market expectations and economic forecasts,” he said.

He also pointed to a longer-term structural shift in the global economy.

“We are moving into a world where control over commodities becomes both an economic and geopolitical tool,” he said, citing recent examples of export restrictions on energy products and critical inputs.

“One of the key lessons is the importance of maintaining strategic reserves of oil and gas,” he said. “Many countries have learned the hard way that they were underprepared.”

As a result, he expects global energy prices to remain structurally higher even after the current crisis subsides.

Naser Ezaz Bijoy, the chief executive officer of Standard Chartered Bangladesh, said in the same interview that Bangladesh’s ongoing economic challenges have been building over several years.

“Bangladesh’s current challenges did not begin with the war. They started during Covid-19, followed by the Russia-Ukraine conflict, which created foreign currency pressures,” he said.

“There was a strong expectation that after the political transition, investment would pick up and economic activity would accelerate,” Bijoy said. “However, fresh external disruptions have continued to weigh on the outlook.”

He stressed that limited fiscal capacity remains a core constraint.

“Our tax-to-GDP ratio is weak, and revenue collection has been consistently low,” he said, warning that this leaves the country with less room to respond to shocks.

Government decisions to adjust administered prices, particularly in energy, are also adding to cost pressures.

“The government initially deferred price adjustments due to political sensitivities, but ultimately had little choice but to implement them,” he said, adding that such measures would inevitably affect both inflation and the cost of doing business.

At the same time, he emphasised that ensuring an uninterrupted energy supply is more critical than keeping prices low.

Bijoy also pointed to setbacks in external financing discussions. “The IMF negotiations did not progress as expected, which is another hurdle,” he said, adding that the issue would require high-level policy attention.

On the external sector, Bijoy said export performance has weakened in recent months, particularly in Europe.

“The decline in exports began around August,” he said, attributing it to softer demand, higher costs and intensifying competition from countries such as China and India.

Buyers are also changing sourcing strategies.

“They are increasingly diversifying and consolidating orders with larger suppliers who are better equipped to meet sustainability standards and manage risks,” he said.

Despite the slowdown, Bijoy does not foresee a sharp downturn. “We are seeing a modest dip in exports, around 4.5 percent, which may reach 5 to 5.5 percent. It is not a catastrophic situation,” he said.