# **_4.2 Macroeconomic projections of crisis impact_**

Projections of aggregate and sector‐specific growth rates for 2009 and 2010, obtained from the World Bank Bangladesh country office, are used as inputs into our micro‐simulation model (see Annex 2, Table A.2 for more detailed data). In conducting simulations, two scenarios are considered for each year: (i) the scenario with crisis, and (ii) the benchmark or “no‐crisis” scenario (namely projections that were made before the crisis hit).

Aggregate GDP growth is expected to be 0.8 and 1.5 percentage points lower with crisis compared to the benchmark or no‐crisis **Table 1: Macroeconomic projections** scenario, in 2009 and 2010 Impact of Crisis respectively (Table 1). Growth of Baseline <mark>With Crisis</mark> <u>(</u> _Crisis – Benchmark_ <u>)</u> output in industry and services is <mark>2005 2009 2010 2009 2010</mark> projected to slow down by 1.1 and _Output growth (%)_ 1.2 percentage points respectively Total GDP 5.9 5.8 5.6 ‐0.8 ‐1.5 in 2009 and by 3.3 and 1 Agriculture 2.2 4.6 3.6 0.6 ‐0.3 percentage points respectively in Industry 8.3 5.9 6.0 ‐1.1 ‐3.3 2010. The impact is most significant in the industry sector Services 6.4 6.3 6.1 ‐1.2 ‐1.0 primarily due to a fall in demand _Remittances_ for manufacturing exports and the _(US$ millions)_<sup>18</sup> 3,848 9,689 10,872 ‐311 ‐1,228 spillover effect this may have on _Source_ : World Bank Bangladesh country office (as of September 2009) ancillary industries. The impact is _Note:_ 1) Benchmark projections are the projections made for the relevant years much smaller for the service sector at a time _before_ the financial crisis occurred. 2) Crisis projections take into account the impact of the crisis. since services in Bangladesh are generally not traded and therefore less susceptible to global trends.

Importantly, remittances are expected to be lower by about 10% due to the crisis in 2010, compared to the no‐crisis scenario. In 2009 however, the available figures suggest that the actual growth in remittances in 2009 was about the same as it was predicted before the crisis. Even with the crisis, remittances are expected to grow by 12% between 2009 and 2010 in dollar terms, which is however quite a bit lower than the 21% growth that was expected had there been no crisis.

In sum, the macroeconomic impacts of the crisis, according to the latest projections, are estimated to be relatively small in Bangladesh and occur mainly in the industry sector and remittances. This suggests that the impact on _labor earnings_ of household is likely to be small in both 2009 and 2010 and skewed towards households earning income from industry sector. The adverse impact on remittance growth would lead to some losses in household _non‐labor income_ for year 2010, but not for year 2009.

> 18 For the purposes of the simulation, the remittance projections are converted into Takas using the taka:US$ exchange rate for each year, and then adjusted to 2005 takas using each year’s CPI (adjusted to base year 2005). In other words, the following formula is applied to each year’s remittance projection: R<sup>R</sup> = R<sup>N</sup> . ε/CPI, where R<sup>R</sup> is the amount in real takas (at 2005 prices), R<sup>N</sup> is the amount in nominal US dollars, and ε is that year’s exchange rate.

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