What is a business cycle?

According to macroeconomics, a business cycle (or an economic cycle) is a type of

fluctuation found in the aggregate economic activity of a nation— a cycle that
consists of the expansions occurring at about the same time in many economic
activities, followed by similarly general recessions. In essence, business cycles are
marked by the alternation of the phases of expansion and recession in an aggregate
economic activity and the co-movement among economic variables in each phase
of the cycle.

There are four stages in the economic cycle: expansion (real GDP
is increasing), peak (real GDP stops increasing and begins
decreasing), recession or recession (real GDP is decreasing), and
trough (real GDP stops decreasing and starts increasing).

An expansion features growth in most sectors of the economy, with

increasing employment, consumer spending, and business
investment. As an expansionary stage approaches its peak, the
rates of increase in spending, investment, and employment slow
but remain positive, while inflation accelerates. A recession or
recession is associated with declines in most sectors, with inflation typically
decreasing. When the recession reaches a trough and the economy begins a new
expansion or recovery, economic growth becomes positive again, and inflation is
usually moderate. Still, employment growth may not increase until the expansion has
taken hold convincingly. A recession is generally defined as two consecutive quarters
of negative GDP growth and worse than a recession. The analysts and statistician
agencies that date expansions and recessions often examine several different
economic metrics such as real income, employment, and industrial production, when
identifying turning points in the business cycle.

In parallel, Bangladesh’s economic cycle has reflected all of these typical stages. The
country experienced strong expansion over recent decades, fueled by its booming
garment sector, remittances, and service industry. Peaks often occur during high
export and remittance inflows but are tempered by inflation or high import costs.
Periods of recession, such as the 2008 financial crisis and the COVID-19 pandemic, led
to brief downturns due to reduced export demand. However, Bangladesh has shown
resilience, rebounding quickly after these troughs through renewed export growth and
government support, illustrating a robust recovery pattern.
Analyzing Bangladesh's economic cycle through GDP trends
(1960-2023)
Bangladesh’s GDP from 1960 to 2023 shows significant growth, averaging $82.85 billion
with a large spread (standard deviation of $117.71 billion), highlighting substantial
economic fluctuations. Starting at $4.27 billion in 1960, GDP peaked at $460.13 billion,
reflecting major economic expansion. Key milestones include a 25th percentile GDP of
$11.91 billion (early growth), a median of $31.65 billion (developing phase), and a 75th
percentile of $82.62 billion (modern expansion). This data reveals Bangladesh's shift
from a low-income economy to one of considerable growth, influenced by sectors like
manufacturing, remittances, and infrastructure improvements.

Bangladesh's GDP growth from 1960 to 2023 aligns closely with the four stages of the
business cycle:

Trough and Early Recovery (1960s-1970s): GDP was very low in the 1960s, marking a
trough as Bangladesh (then East Pakistan) had limited industrial infrastructure. After
independence in 1971, the economy faced challenges, but gradual stabilization
marked the start of a recovery phase.

Expansion (1980s-Early 2000s): The GDP growth accelerated steadily, supported by

agriculture, remittances, and the emerging garment industry. The 1980s and 1990s saw
steady GDP gains, marking a robust expansion phase with a median GDP rising to
$31.65 billion by the mid-1990s.

Peaks and Continued Growth (2000s-2019): By the early 2000s, then Bangladesh’s
economy hit successive peaks, driven by rapid growth in exports and investment. GDP
climbed significantly, reaching a 75th percentile of $82.62 billion. High growth rates
during this period reflect a sustained peak phase in the business cycle.

Recession and Quick Recovery (2020-2023): The COVID-19 pandemic led to a

temporary recession, as GDP growth slowed amid global disruptions. However,
recovery was swift, fueled by resilient sectors and returning exports, bringing GDP back
on an upward path, suggesting a new expansion phase as the economy regains
momentum.

This cycle illustrates Bangladesh's journey from an emerging economy through

development phases and highlights its resilience during recent global downturns.

Annual Changes in Bangladesh’s GDP (1960-2023)

Bangladesh’s economic journey over the past several decades provides a valuable
case study of how these cyclical phases manifest, particularly in an emerging
economy. The accompanying graph depicts annual percentage changes in
Bangladesh’s GDP from 1960 to 2023, highlighting distinct periods of economic growth,
peaks in performance, downturns, and recovery. By analyzing these fluctuations, we
can gain insight into how Bangladesh's economy has evolved and responded to
various internal and external influences over time.

Expansion: Bangladesh has experienced prolonged economic expansion, especially

since the 1980s, characterized by consistent, positive GDP growth. This phase reflects
the country’s industrial growth—particularly in the textile sector—and rising
remittances, which have strengthened the economy and promoted stable
employment levels.

Peak: Peaks in Bangladesh’s GDP growth are observed in the late 1960s and
periodically from the mid-2000s to the 2010s. The late-1960s peak, with growth
exceeding 10%, suggests a period of economic optimism before the disruptions of the
1970s. Subsequent peaks align with infrastructure investments and strong export
performance, indicating phases of maximum economic output before growth slowed.

Contraction: Notable contractions are visible in the early 1970s and around 2020. The
severe contraction in the early 1970s, where GDP fell by over 10%, corresponds to the
economic impacts of the Liberation War in 1971. The more recent contraction in 2020 is
associated with the COVID-19 pandemic, which disrupted both domestic economic
activity and export-driven growth.

Trough: The lowest points in Bangladesh’s business cycle appear in the early 1970s
and in 2020. The post-war trough in the 1970s represents a period of significant
economic hardship, while the 2020 trough reflects the temporary downturn during the
global pandemic before recovery began.

In summary, Bangladesh’s GDP data from 1960 to 2023 provides a clear illustration of
the business cycle phases, showing the country’s progression from high volatility to
greater economic resilience and stability. The data indicate that Bangladesh’s
economy has matured over time, with more sustained and stable growth in recent
decades, reflecting an increasingly diversified economic base and improved capacity
to withstand external shocks.

Key Insights
Bangladesh’s GDP trajectory over these decades reveals a business cycle of an
emerging economy that has transitioned from an initial trough, through long periods
of expansion, to some modern-day recessions and resilient recoveries. The economic
policies, external trade, and global market conditions have influenced each cycle
phase, and with sustained policy improvements, Bangladesh may continue on a path
of robust expansion in the coming years.
Early Stages and Initial Trough (1960s - Early 1970s)

In the 1960s, Bangladesh (then East Pakistan) had a relatively low GDP, with limited
industrialization and economic infrastructure. After its independence in 1971, the
economy faced severe challenges including the aftermath of war, underdeveloped
infrastructure, and initial political instability. This stage shows trough and initial
expansion.

The early post-independence period marked a trough as GDP was low and the
economy struggled to stabilize. However, with time, Bangladesh began making efforts
to build its economic base, slowly moving toward growth.

Expansion Period (1980s-Early 2000s)

Throughout the 1980s and into the early 2000s, Bangladesh's economy gradually
expanded, fueled by agricultural development, remittances from overseas workers,
and the emergence of the ready-made garment (RMG) sector. The government
undertook various development projects, and international organizations provided
support.

This period reflects an ongoing expansion phase, marked by steady GDP growth and
a gradual increase in per capita income. The economy diversified, and industrial
sectors began to flourish. Bangladesh witnessed average annual GDP growth rates
close to or above 5%, indicating sustained economic progress.

Modern Expansion and Peaks (2000s-2019)

So, from the early 2000s onwards, Bangladesh experienced accelerated economic
growth. The RMG sector expanded rapidly, making Bangladesh one of the world's
largest garment exporters. In addition, foreign direct investment (FDI) increased,
infrastructure improved, and poverty levels decreased significantly. Economic policies
became more stable, with targeted interventions aimed at promoting exports and
boosting productivity.

GDP rose sharply, and Bangladesh’s aggregate economy moved through successive
peaks. During this time, GDP growth rates consistently hovered around 6-7%, with
some years even surpassing 8%. This period reflects a prolonged and robust
expansion phase, as Bangladesh capitalized on global trade, labor advantages, and
a growing domestic market.

Recent Recessions and Resilience (2020 - 2023)

The global COVID-19 pandemic in 2020 triggered a sharp recession in economies

worldwide, including Bangladesh. Although Bangladesh's economy remained
somewhat resilient due to remittances and a rapid recovery in the RMG sector, the
impact was notable. Global supply chain disruptions and reduced demand for exports
temporarily slowed GDP growth.

While the pandemic period represented a recession, Bangladesh managed to avoid

a deep recession due to its rapid economic adjustments and recovery measures. By
2021-2023, GDP growth rebounded, though at a slightly slower pace than pre-
pandemic years, indicating a modest recovery. This suggests the start of a new
expansion cycle but also hints at the economy's sensitivity to global disruptions.

Emerging Growth Prospects (2023 Onward)

As of 2023, Bangladesh's economy shows signs of entering a new growth phase,

supported by digital advancements, infrastructure projects like the Padma Bridge, and
diversification in exports beyond garments.

Bangladesh is well-positioned for continued growth, but it must address challenges

like inflation, infrastructure constraints, and environmental risks. The recent expansion
indicates a return to positive GDP growth rates, although the global economic
environment may influence future peaks and potential recessions.