Bangladesh's industrial growth hits decade low: A microcosm of structural difficulties in emerging markets

The Industrial Engine Stalls: Behind Bangladesh's Lowest Growth in a Decade

In the 2025-26 fiscal year, Bangladesh's industrial value added grew by only 2.86%, the lowest level in a decade. This figure stands in stark contrast to the overall economic GDP growth of 4.14%—although the latter rebounded from the previous year, the industrial sector has clearly failed to keep pace. The industrial sector, accounting for about 37% of GDP, has performed weakly, directly impeding the process of economic structural transformation.

Multiple Pressures Overlap: A Full Squeeze from Energy to Credit

The industrial slowdown is not caused by a single factor. Energy shortages are foremost: due to insufficient natural gas supply, many factories are operating at only 30%-40% capacity utilization, with high-energy-consuming industries such as ceramics and glass being particularly hard hit. At the same time, non-performing loans in the banking system continue to rise, credit resources are tilted towards government bonds, and financing costs for the private sector remain high. According to data from the Bangladesh Bank, lending rates have been elevated for a long time, and with inflation close to 10% for most of the past four fiscal years, the real borrowing costs for enterprises far exceed what is bearable.

External demand is also not optimistic. The garment manufacturing industry, which is the core of the industrial sector and accounts for about one-third of industrial output, saw a year-on-year decline of 2.55% in total exports during the period from July 2025 to May 2026. The slowdown in global trade growth and weakening demand in major consumer markets have directly impacted Bangladesh's export-oriented manufacturing.

Government Ambition and the Reality Gap

Despite these difficulties, Bangladesh's Ministry of Finance, in its 'Medium-Term Macroeconomic Policy Statement,' has set targets for industrial growth to gradually increase from 7% in fiscal year 2026-27 to 8% in fiscal year 2028-29. Short-term stimulus policies include deregulation, increased public infrastructure investment, and improvements in energy supply. However, economists generally believe these targets are 'overly optimistic,' citing that the current foundational conditions are not yet mature.

To truly achieve industrial recovery, at least five key issues must be addressed simultaneously: First, stabilize the exchange rate and foreign exchange reserves to ensure smooth imports of raw materials; Second, restore the health of the banking system, reduce non-performing loan ratios, and unblock credit channels; Third, bring inflation back to a reasonable range to repair residents' real purchasing power; Fourth, ensure reliable and cost-controllable energy supply; Fifth, promote diversification of export markets to reduce dependence on the single garment industry.

Structural Commonalities in a Global Perspective

Bangladesh's predicament is not unique. Many emerging economies with manufacturing at their core are undergoing similar structural pains: the rise in global interest rates and the strengthening of the US dollar have led to capital flowing back to developed markets, coupled with geopolitical fragmentation disrupting supply chains, making the industrial model driven by external demand unsustainable. However, what makes Bangladesh unique is that its domestic debt and energy problems are more acute—the government's large-scale borrowing from banks has caused a 'crowding-out effect,' while long-term underinvestment in energy infrastructure has become a hard constraint on production.Looking from a longer cycle, the slowdown of Bangladesh's industry also reflects the inevitable pains of its transformation from "low labor cost advantage" to "efficiency and diversification-driven" growth. As the demographic dividend gradually weakens and technological upgrading and productivity improvement have yet to be achieved, industrial growth will naturally enter a plateau.

Outlook: Conditions and Time Window for Recovery

In the short term, whether industrial growth can double as the government wishes depends on the execution of policies and the cooperation of the external environment. If global inflation continues to ease and major central banks shift to a looser monetary policy, it will create a more favorable window for Bangladesh's exports. At the same time, the country must accelerate banking reforms, stabilize energy supply, and reduce inflation expectations through fiscal discipline. Economists point out that if the above conditions do not significantly improve within half a year, the 7% industrial growth target is likely to remain on paper.

The case of Bangladesh reminds policymakers: post-pandemic economic recovery cannot rely solely on aggregate stimulus, but requires systematic resolution of supply-side bottlenecks. For emerging markets, rebuilding manufacturing competitiveness is a protracted battle that requires patience and perseverance.