Daily The Business

Achieving real GDP growth target of 4pc appears unlikely: SBP

With industrial sector under stress, demand for imported raw-material is expected to stay low

M Jahangir Hayat

LAHORE: In view of major developments in the first quarter of the financial year 2019-20, achieving a real GDP growth target of 4 per cent appears unlikely, State Bank of Pakistan (SBP) recent report said.
The current account balance is expected to improve over the projections presented in the Annual Report for 2018-19.
This mainly reflects a more-than-expected contraction in imports. With the industrial sector under stress, its demand for imported raw-material is expected to stay low.
Commodity prices are also subdued, amid the slowdown in the world economy and the absence of key triggers (resolution of the US-China trade dispute and Brexit).
On the flip side, the tepid global growth outlook and commodity prices may also weigh on both exports and remittances. Nonetheless, any negative impact on these earnings would be more than offset by the reduction in import payments.
On balance, therefore, the current account deficit for FY20 is likely to stay within the range of 1.5 – 2.5 per cent of GDP.
However, the performance of the commodity-producing sectors is likely to remain subdued.
In case of agriculture, targets for the overall crop sector may not be achieved as the production of both cotton and sugarcane is estimated to remain lower than in FY19, the report said.
The industrial sector is also expected to remain under stress.
The latest Large Scale Manufacturing (LSM) estimates for October 2019 show an 8.0 per cent decline on a year-on-year basis, steeper than the 5.9 per cent decline recorded in Q1-FY20.
Nonetheless, export-oriented industries continue to perform better. Also, the government’s decision to postpone regulatory actions for businesses for implementation of the CNIC restriction up till February 2020 (and also, axle load management), may ease manufacturers’ operational constraints to some extent, the report said.
“In view of these developments, achieving the real GDP growth target of 4 per cent appears unlikely.
“ In case of inflation, pressures are expected to recede in the second half of the fiscal year, in light of continued softness in domestic demand (which is expected to keep core inflation in check), and stability in the exchange rate on the back of improving CAD and financial inflows. For the full-year, the SBP estimates average headline CPI inflation to stay within the range of 11 – 12 per cent, ” the report added.
This forecast is subject to upside risks in the form of a reversal in global crude prices, exchange rate depreciation and increased budgetary borrowings, the SBP report concluded.

Leave A Reply

Your email address will not be published.