Business confidence on a zigzag course
According to a latest survey, consumer confidence in Pakistan remained unchanged at 51.82 index points in January, from 51.82 index points in December of 2018. In this context, it may be mentioned here that consumer confidence in Pakistan averaged 43.05 index points from 2012 to 2019, reaching an all-time high of 55.97 in September of 2018 and a record low of 29.05 in May of 2012.
Parallel to consumer confidence and inflation perception surveys, the State Bank, of Pakistan (SBP) in collaboration with the Institute of Business Administration, has been conducting the Business Confidence Survey since 2017 at a bi-monthly frequency (i e February, April, June, August, October and December). The survey is designed to obtain the opinion of firms in the industry and services sector about current and expected business conditions and major factors affecting their businesses. The SBP, in its pursuit to improve policy formulation, has been increasing its outreach to various stakeholders for their feedback for many years now. Specifically, it obtains views of consumers, businesses and other stakeholders on current and expected economic trends in the country by directly contacting them through various surveys.
The survey provides an opportunity for businesses to contribute directly to the policy formulation process by sharing their perceptions of current and future economic and business conditions. Further, the survey provides information to the State Bank regarding the perceptions of company managers about current and expected business conditions and major factors affecting these conditions. It covers both present views on production, hiring of employees, demand for credit and economic conditions as well as their outlook.It may be added here that the SBP business survey is largely based on current and expected economic conditions, which are then combined to produce an overall Business Confidence Index (BCI).
“Encouragingly, firms in our survey are planning to hire more employees in the next six months,” the State Bank of Pakistan said in the August edition of its bi-monthly survey, which obtained the opinion of business leaders in 500 firms from the industry (manufacturing, construction, retail and wholesale trade) and services sector.
Over the last six months, the central bank has gradually increased its policy rate to make commercial borrowing more expensive. Expensive loans means businesses may put a stop to new investment (other than necessary ones) and the government will have to borrow less and undertake fewer projects, which will translate into a slowdown in job creation. As pointed out by experts, macro-economic policies are geared towards achieving economic stability and are likely to affect large-scale manufacturing. Consequently, economic activity may slow down in the financial year ending June 2019.
At present, the economy is facing multiple challenges. The government is spending more than it earns, which means every year there is a Rs2.2 trillion loss or deficit. Compounding this problem is the fact that our monthly imports exceed exports by $2.7 billion. This double loss, coupled with rising inflation, is likely to compromise the sustainability of high real economic growth.
The latest business confidence index shows there are more negative views about the emerging economic situation. There is also some marginal deterioration in perceptions relating to production and employment. However, when it comes to expected economic conditions, the business community maintains a positive perception.
It may be recalled here that in the August 2018 wave of the BCS, 444 firms successfully completed the survey. SBP’s headline “Overall Business Confidence” was composed of two sub-indices of “Current Business Confidence” and “Expected Business Confidence”. The perceptions of respondents regarding both current and expected economic and business conditions changed during the last six months. The business confidence index declined for both the industry and services sectors. For industry, it declined from a level of 47 in June 2018 to 45 in August 2018. Similarly, for the services sector it changed from 48 to 46. The main driving factor for thies decline in business confidence is the views of survey respondents regarding the general economic conditions in the country. There is also some marginal deterioration in perceptions regarding production and employment.
It is notable that the percentage share of strong positive views has declined in recent months. Similarly, the share of strong negative views has declined from 14 percent to 11 percent. On the other hand, percentage share of positive, neutral and negative views increased by 2 percent each over the same period. The Expected Business Confidence Survey revealed that there is a clear and pronounced increase in both services and industry. Furthermore, the share of firms having positive views of the current economic and business environment and for economy and business conditions in the next six month is significantly higher.
Contrary to the case of the current business confidence index, a detailed analysis of results reveals different pattern of movement from the shares of neutral, moderately negative and strong negative views towards moderately positive and strong positive views. There is a significant positive shift in the perception of businesses regarding future economic and business conditions. Encouragingly, firms in the survey are planning to hire more employees in the next six months. This is a positive sign for the growth and employment prospects for the current fiscal year.