Pakistan’s economy showed encouraging signs of recovery as it expanded by 3.89 percent year-on-year in the second quarter of fiscal year 2025–26, marking the strongest second-quarter performance in four years.
The latest data, released by the National Accounts Committee (NAC) and compiled by the Pakistan Bureau of Statistics, underscores a gradual but steady improvement in economic activity, with the industrial sector emerging as the primary engine of growth. This rebound comes at a time when the country has been navigating a challenging macroeconomic environment marked by inflationary pressures, fiscal constraints, and external vulnerabilities. Despite these hurdles, the latest figures indicate that economic momentum is building, albeit unevenly across sectors.
According to the revised estimates, first-quarter growth was adjusted downward to 3.63 percent from an earlier estimate of 3.71 percent. As a result, the average growth rate for the first half of FY2025–26 now stands at 3.76 percent. While the revision is marginal, it reflects the ongoing process of data refinement and highlights the importance of accurate economic measurement in shaping policy decisions.
The committee also made slight downward revisions to growth figures for previous fiscal years. GDP growth for FY2023–24 has been revised to 2.62 percent, while FY2024–25 now stands at 3.06 percent. These adjustments suggest that while the recovery trajectory remains intact, it has been somewhat more modest than previously estimated.
A key highlight of the latest data is the robust performance of the industrial sector, which recorded a strong expansion of 7.4 percent in the second quarter. This marks a significant improvement compared to the meagre 0.8 percent growth recorded during the same period last year. The sharp uptick reflects increased economic activity, improved demand conditions, and a degree of stability in input costs.
Large-scale manufacturing (LSM), a critical component of the industrial sector, grew by 5.71 percent during the quarter. This growth was driven by strong gains in automobile production, transport equipment, and petroleum products. The revival of these industries signals improving consumer demand and business confidence, both of which are essential for sustaining economic growth.
The utilities segment, which includes electricity, gas, and water supply, posted an impressive growth rate of 15 percent. This surge can be attributed to increased energy demand from both industrial and domestic consumers, as well as improvements in supply management. Meanwhile, the construction sector also demonstrated notable strength, expanding by around 11 percent. This growth reflects ongoing infrastructure development and a pickup in private sector construction activity, both of which have positive spillover effects across the economy.
However, not all segments of the industrial sector performed equally well. Mining and quarrying contracted by 2.46 percent during the quarter, primarily due to declines in gas and marble production. This downturn highlights persistent structural challenges in resource extraction industries, including outdated technology, regulatory hurdles, and declining reserves in some areas.
The agriculture sector, which remains a vital component of Pakistan’s economy, recorded a modest growth of 1.76 percent in the second quarter. This growth was largely supported by livestock, forestry, and fishing activities. However, the sector faced headwinds due to a contraction in major crops, including a slight decline in cotton output. Given agriculture’s significant contribution to employment and rural livelihoods, its underperformance remains a concern for policymakers.
The services sector, which accounts for a substantial share of GDP, expanded by 3.69 percent during the quarter. Growth in this sector was driven by public administration, social services, and healthcare-related activities. The steady performance of services indicates resilience in domestic demand and reflects continued government spending in key areas.
Taken together, these sectoral trends paint a picture of a gradually recovering economy, with industry leading the way while agriculture lags behind. The divergence highlights the need for targeted interventions to address sector-specific challenges and ensure more balanced growth.
Economic analysts view the latest data as broadly in line with expectations and believe it supports full-year GDP growth projections in the range of 3.5 to 4.0 percent. The improving performance of the industrial sector, coupled with a stable services sector, provides a solid foundation for sustaining this growth trajectory. However, they caution that risks remain, particularly in the form of external pressures and domestic structural weaknesses.
Among the key risks is the continued fragility of the external sector. Rising global commodity prices, especially for energy, could increase the import bill and strain foreign exchange reserves. Additionally, any slowdown in global economic activity could impact exports and remittances, further complicating the outlook.
Domestically, the agriculture sector’s weak performance poses another challenge. Weather-related disruptions, water shortages, and low productivity continue to hinder growth in this sector. Addressing these issues will require long-term investment in irrigation, technology, and agricultural practices.
Inflation also remains a concern, as rising costs can erode purchasing power and dampen consumer demand. While recent stabilization measures have helped contain price pressures to some extent, maintaining this balance will be critical for sustaining economic momentum.
In conclusion, Pakistan’s 3.89 percent growth in the second quarter of FY2025–26 marks a significant step forward in the country’s economic recovery. The strong performance of the industrial sector is particularly encouraging and signals a revival in productive activity. However, the recovery remains uneven, with agriculture lagging and external risks looming large. To build on this progress, policymakers must focus on structural reforms, sectoral support, and macroeconomic stability. Only through a comprehensive and sustained effort can Pakistan achieve durable and inclusive economic growth in the years ahead.