Getting optimistic

"It was the best of times; it was the worst of times..." The highs and lows surrounding shopping over this Eid seemed just too much. Money cannot buy everything, after all. If you had somehow navigated the sea of people outside shopping malls, good luck getting inside the establishments and getting out in time, carrying exactly what you had intended to purchase. With apologies to Charles Dickens, this seemed to be the tale of many raining cities across Pakistan this month.
Loose estimates suggest spenders parted with nearly a trillion rupees over Eid shopping and festivities. Besides, a new spending avenue has emerged. An increasing number of middle-class families in Punjab are seen vacationing on hill-stations during Eid holidays. Traffic police reportedly claimed last week that over one lac vehicles entering Murree on Eids second day, a record. That translates into at least a half-million tourist influx. And thats just one resort in the north.
Of course, households tend to tighten their belt following the twin spending peaks every year, the other being Eid-ul-Azha. Yet this years spending spree witnessed before and during Eid will be harder to dismiss as just another seasonal outlier. What is going on here?
Economic mood in Pakistan is on the way up, as per Pew Research, the DC-based pollster, which released its global economic sentiment tracker last week. In fact, Pew classified the country among top-five economies where there was the largest positive change in economic attitudes relative to previous year, other four nations being Spain, India, Argentina and Nigeria. (The Pakistan leg of the survey conducted face-to-face interviews in April 2015 with 1,200 folks, in nine regional languages.)
Survey findings show that 47 percent of Pakistanis think that the current economy is good, an improvement of 10 percentage points over 2014. Interestingly, abject disappointment - those describing the current economic situation as "very bad" - was at 23 percent, comparable to the same sentiment in Pews summer 2002 survey, right about the time Pakistan was on the cusp of a five-year period of remarkable economic expansion.
The same poll had 51 percent of respondents disenchanted with the current economic situation. That is perhaps a reflection, among other things, of lackluster industrial employment-generation and depressed farming incomes lately.
About 48 percent Pakistanis expect the economic situation to improve over the next year, 23 percent believe it will remain the same, and only 13 percent fear it will worsen. Juxtaposing extreme opinions, back in summer 2002, about 5 percent of folks had said the economy would "worsen a lot over next 12 months"; same percentage felt the same in spring 2015. Just 7 percent reckoned the economy will "improve a lot" in summer 2002; in spring 2015, a higher, 18 percent of the respondents echoed this view.
These numbers show Pakistanis are more sanguine about their country than are Filipinos, Indonesians, Turks, and Malaysians in emerging Asia. Our mighty neighbours, however, are more optimistic, with 84 percent of Chinese and 74 percent of Indians feeling upbeat about their economies in the near future.
Three Ps may explain the forces behind Pakistanis growing optimism: petrol, patrol, and politics. Crude oils prolonged shellacking has resulted in multi-year lows in inflation and interest rates. After a decade of setbacks, military personnel and law-enforcement agencies seem on top of security matters. Compared to last year, politics in Punjab, which largely determines national political mood, is a calming influence today.
In short, it seems more Pakistanis are loaded and they feel safer frequenting the bazaars. But these things alone do not supply sufficient conditions for economic growth. Rising consumption will be a good thing for economic fundamentals if more of it is met by a growing domestic industrial output. So, private fixed-capital formation has to grow better than 3.2 percent seen in FY15.
However, borrowing some more from the great British novelist, Pakistan of today may be representing, overall, a "spring of hope" rather than a "winter of despair". But the bulls won't wait until the cows come home. As identified in this column yesterday, the forces underlying the current economic mood provide a maximum two-year window of opportunity. Its time to take measures that enhance industrial output, not just construction activities, in order to generate employment and exportable surplus in factories on front-end and in commodity farms on the back-end.