Bangladesh economy has been showing signs of higher growth across its major sectors including manufacturing, agriculture and services. Going by the Purchasing Managers Index (PMI), which is a composite index based on surveys on the responses of the purchasing managers of different companies about various aspects of their business, including new orders, production, employment, supplier deliveries and inventories, demonstrated a stronger performance of the economy.
In this connection, last May’s PMI at 58.9 showed an increase by 6 points compared to what it was in the previous month (April). Evidently, it is a demonstration of reinvigoration seeing that the previous months since February were marked by a slowdown of the economy as indicated by their PMIs. So, the indicators point to an expansionary trend in the major sectors, especially agriculture, manufacturing and services. The agriculture, for example, showed the eighth consecutive month of growth so far as new business initiatives, business activity, employment and input costs were concerned. In particular, the order backlog index, which represents the undelivered portion of orders that a company had received, has returned to an expansionary trend. This is no doubt a positive trend since previous months had been the ones of contraction. Though the higher indices of order backlog indicate growth in business activity, they at the same time are also reflective of the output that is below its maximum potential. That is so because order backlog by definition is indicative of unfulfilled order deliveries. Across a particular sector of an economy, such as the agriculture, it is obviously indicative of a rising demand market. In a similar vein, the manufacturing sector, too, according to the last month (May)’s PMI, demonstrated a positive growth momentum driven by expansionary trend at an accelerated pace for the consecutive ninth month. The breakdown of the indices show that new business initiatives in the manufacturing sector demonstrated a rise. However, the order backlogs index remained contractionary though at a slower rate for ten straight months till May.
The construction sector, on the other hand, was expansionary for the sixth consecutive month, though, since April, the sector’s growth remained stagnated. That means construction activities gained momentum with order backlogs demonstrating expansionary trend. But so far as new business initiatives and related employment generation was concerned, it reverted to a contractionary track. According to the PMI readings, the costs of inputs which involve the goods and services such as raw materials, components, energy a well as staff that a company employs to run its production process registered a rise, though at a slower pace. Similarly, the services sector demonstrated a faster growth with expansion into new business ventures with an attendant higher index value of order backlogs suggesting strong demands, moderate growth in employment and a rise in input costs. Overall, in experts’ view, the economy exhibited an accelerated rate of growth for the month under review. In particular, Dr Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh (PEB), held that the latest PMI readings implied a faster rate of growth of the overall economy. And that growth took place against the backdrop of, what he pointed out, “export-led manufacturing buoyancy and uptake in agriculture and its supply chain ahead of the Eid festival”.
The interim government would do well to take the growth indicators as reflected in last month’s PMI into due consideration to devise its economic policies for the next fiscal year. For, that would help the elected government to take office next to build on a positive legacy left by the incumbent interim government. Though PMI is a widely used indicator tracking an economy’s general health, there is still room for critically assessing its findings. Especially, the PMI depends on the company executives’ responses which are basically subjective and prejudiced by personal bias. Even so, despite limitations, PMI can at least provide a good rule of thumb for the policymakers to take their cue from.