Bangladesh’s industrial output fell in the January-March quarter of fiscal year 2025-26, the first such decline since the pandemic-hit fourth quarter of FY20, as gas and electricity shortages, weak export demand and high borrowing costs squeezed factories.
Industrial production contracted 0.28 percent in the third quarter of FY26, reversing 3.33 percent growth in the same period a year earlier, provisional data published yesterday by the Bangladesh Bureau of Statistics (BBS) showed.
Output had slumped 14.94 percent in the April-June quarter of FY20 during the nationwide Covid lockdown, then stayed positive through subsequent quarters until this latest contraction.
Economists attributed the latest decline to prolonged uncertainty that has discouraged businesses from investing and expanding.
Md Deen Islam, a professor of economics at the University of Dhaka, said the contraction reflects deep-rooted structural weaknesses rather than a temporary dip.
“A negative industrial growth rate is a clear signal that production capacity is being constrained by supply-side bottlenecks,” he said.
“Persistent shortages of gas and electricity have significantly reduced factory utilisation, while high borrowing costs and weak private investment have further suppressed industrial activity.”
Towfiqul Islam Khan, additional research director at the Centre for Policy Dialogue (CPD), said the fall in manufacturing output was likely linked to declining exports.
The industrial downturn dragged overall GDP growth down to 2.22 percent in the January-March quarter, from 4.53 percent a year earlier.
Agriculture and services also lost momentum. BBS data shows that agriculture growth eased to 1.74 percent from 4.61 percent a year earlier, while services — which account for more than half of GDP -- slowed sharply to 3.52 percent from 7.32 percent, reflecting broad-based weakness across the economy.
Prof Deen said the government’s stimulus package and budget incentives could offer some relief to entrepreneurs, but their effectiveness would depend on timely implementation and complementary reforms.
“Providing subsidised credit is necessary, but it is not sufficient,” he said. “Manufacturers cannot expand production if they do not have reliable access to energy. The real challenge is ensuring that financial support is matched by uninterrupted gas and electricity supplies and a stable business environment.”
He also pointed to the need to revive private investment.
“Banks have become increasingly risk-averse, with much of their liquidity flowing into government securities instead of productive private-sector lending,” the economics professor said. “Unless confidence returns and credit begins flowing to industries, industrial recovery will remain slow despite fiscal incentives.”
With Bangladesh approaching its graduation from the group of least developed countries, Deen said strengthening industrial competitiveness should be an immediate policy priority.
“The country is entering a more competitive trading environment where industries will no longer enjoy many of the preferential market access benefits they have relied on,” he said.
“This is precisely the time to raise productivity, improve infrastructure, and reduce the cost of doing business. Otherwise, the current slowdown could have lasting implications for exports, employment and long-term economic growth,” he added.
Ashikur Rahman, principal economist at the Policy Research Institute (PRI) of Bangladesh, linked the slowdown to the political transition.
“The election created a wait-and-see environment, prompting businesses to postpone investment decisions amid heightened uncertainty,” he said. “When investors lack policy certainty, private investment naturally slows, and that is reflected in the growth numbers.”
He added that political uncertainty, compounded by external shocks, kept the economic environment weak through the third and fourth quarters.
Referring to the IMF’s projection that Bangladesh’s growth may stay below 3.5 percent without reforms, Ashiur said the forecast should be read as a warning rather than merely a projection.
“Bangladesh cannot expect stronger growth simply through macroeconomic stabilisation. It needs a credible reform agenda that restores confidence among domestic and foreign investors,” he said.
He argued the country appears trapped in a low-growth, high-inflation equilibrium that fiscal consolidation or financial sector reforms alone cannot fix.
“The government also needs productivity-enhancing reforms to improve the investment climate, strengthen institutions, develop skills and remove structural bottlenecks,” said the PRI principal economist. “At the same time, it must present a credible macroeconomic roadmap that brings back predictability and certainty. Once confidence returns, investment, employment and growth will gradually recover.”
The BBS had earlier put the country’s provisional GDP growth for FY26 at 4.14 percent, up from 3.49 percent in the previous fiscal year.
Multilateral lenders have offered a mixed outlook. The World Bank, in its June 2026 Global Economic Prospects, projected Bangladesh’s GDP growth at 3.9 percent, citing persistent macroeconomic challenges and weak private investment. The Asian Development Bank lowered its forecast to 3.7 percent in its July 2026 Asian Development Outlook Update, citing slower industrial activity and continued uncertainty.
The IMF has kept a comparatively more optimistic forecast of 4.7 percent in its April 2026 World Economic Outlook, though it has repeatedly stressed that sustaining higher growth will require comprehensive structural reforms, stronger private investment and macroeconomic stability.
The IMF has also projected that Bangladesh’s economy will grow by 3.5 percent in the current fiscal year (2026-27) amid continued fiscal and financial sector pressures.
