A mixed picture of growth and decline

Muhammad Zain

The second quarter of the fiscal year 2023-24 saw varied performance across key economic sectors in Pakistan. Large scale manufacturing, electricity, gas, and water supply, as well as the construction industry, experienced contrasting trends, while the services sector exhibited a mixed picture of growth and decline.

In order to meet the IMF’s requirement for quarterly Gross Domestic Product (GDP) figures, the government has disclosed the growth rate for the second quarter (October-December) of the current fiscal year, estimating it to be 1 percent. Additionally, the government has upwardly revised the GDP growth figure for the first quarter (July-September) of the caretaker government period, increasing it from 2.13 percent to 2.5 percent based on revised estimates.

Initially targeting a GDP growth rate of 3.5 percent, the government has revised its projection downwards to a range of approximately 2 to 2.6 percent. This announcement followed the 108th meeting of the National Accounts Committee (NAC) to review the quarterly GDP estimates for Q1 and Q2 of the fiscal year 2023-24.

The revised GDP growth for Q1 of the financial year 2023-24 stands at 2.50 percent, up from the previous estimate of 2.13 percent. Notably, the agricultural sector has seen a substantial revision to 8.58 percent growth from 5.06 percent, primarily driven by significant increases in crop production, particularly in cotton, rice, and maize.

Despite improvements in mining and quarrying, the industrial sector has experienced a downward revision to -0.24 percent growth compared to the previous estimate of 2.48 percent, largely due to declines in large-scale manufacturing, electricity, gas, water supply, and construction. Services have shown a modest improvement, rising from 0.82 percent to 0.92 percent growth, primarily due to improvements in finance and insurance.

In Q2 of the fiscal year 2023-24, the economy experienced a modest growth rate of 1.0 percent. Agriculture saw a growth rate of 5.02 percent compared to the same period last year, mainly driven by increased production of important crops such as cotton, rice, and maize. However, the industrial sector continued to decline, with a negative growth rate of -0.84 percent compared to the same period last year, particularly in mining and quarrying.

Overall, the quarterly GDP figures reflect a mixed performance across sectors, highlighting the challenges and opportunities for economic growth in the current fiscal year.

In the second quarter of 2023-24, large-scale manufacturing, as measured by the Quantum Index of Manufacturing (QIM), experienced a modest growth of 0.35%, driven by increases in production of cooking oil, garments, and fertilizers. The electricity, gas, and water supply industry saw a more robust growth of 1.54%, attributed to higher output from independent power producers (IPPs), hydro, and nuclear plants. However, the construction industry faced a significant decline of -17.59%, primarily due to reduced production of cement and iron & steel, as well as a decrease in government expenditure.

Pakistan’s industrial sector is witnessing a blend of outcomes in the current fiscal year. While overall production from July to January experienced a slight dip of 0.52%, there was a favorable upturn noted in January, with a 1.84% increase in large-scale manufacturing.

Textile production notably faced a significant setback, declining by 10.41% during the initial seven months of the fiscal year. Similarly, vehicle production witnessed a sharp decline of over 46% during the same period. Nevertheless, amid these challenges, certain sectors exhibited encouraging signs. In January, large-scale manufacturing saw a modest increase of 1.84%, hinting at a potential turnaround. Of particular note was the remarkable surge in machinery production, which spiked by 162% in January. Additionally, sectors such as chemicals, fertilizer, medicine, leather products, rubber products, and wood products demonstrated promising growth rates during this period.

The report also highlighted a significant rise in garment production, which surged by 28% in January, indicating a positive trajectory in the industrial landscape. Despite the overarching challenges confronting the industrial sector, these optimistic developments provide hope for future growth and economic recovery.

In the services sector, there was a minimal growth of 0.01% during Q2 of 2023-24. A closer examination of the industry reveals a varied trend. Wholesale and retail trade experienced a growth of 2.11%, driven by positive performance in agriculture output and large scale manufacturing. Transport and storage also showed a moderate increase of 1.13%, attributed to higher output from railways and road transport.

However, industries such as information & communication, finance & insurance, and public administration and social security faced negative real growth rates of -5.43%, -11.1%, and -16.18% respectively, largely due to high inflation. Additionally, both education and human health and social work industries recorded negative growth rates of -0.85% and -2.53% respectively.

Other private services were estimated to have grown at a rate of 3.63% based on indicators received from various sources.

In conclusion, the second quarter of 2023-24 showcased a diverse landscape within Pakistan’s economic sectors. While large scale manufacturing and electricity, gas, and water supply sectors saw modest growth, the construction industry faced significant challenges. The services sector displayed a nuanced pattern, with some sub-sectors experiencing growth while others grappled with negative growth rates, largely influenced by inflationary pressures. Moving forward, policymakers and stakeholders must carefully address sector-specific issues to ensure balanced and sustainable economic development.