Wither consumer confidence?

Pakistan’s economy is overwhelmingly dependent on domestic demand. But, after a couple of strong years for retail, is the consumer still feeling hale and hearty? The central bank’s latest quarterly report – The State of Pakistan’s Economy (1QFY18) – is reading an upbeat consumer pulse for the remainder of FY18, noting that “rising income levels of consumers are fueling retail sales and commercial activities”.

The economy is indeed in an expansionary phase, and it is important that the consumer keeps playing along. So, a healthy demand-side forecast is good news in an environment where the virtuous cycle of low interest rates and low inflation may be about to turn, macroeconomic woes are growing, and political instability is rising by the day. Which way will the consumer sentiment take in coming months?

As of September 2017, two separate surveys showed positive trend in consumer confidence. Nielsen’s recently-released global survey on consumer confidence and spending intentions has scored consumer confidence index (CCI) in Pakistan at an all-time high of 111 for September 2017, up nine points from June 2017. Respondents – who were Internet users, hence this survey has limitations for a country with large offline population – felt better about future spending, personal finances, and employment prospects.

A more methodologically-sound CCI survey, conducted every two months by the Institute of Business Administration (IBA) Karachi and the State Bank of Pakistan (SBP), also showed an up tick in consumer confidence back in September 2017 (diffusion index: 50.3) over July 2017 (47.7) as consumers reported comparatively more positive views about both their current and expected economic conditions.

But the most recent IBA-SBP survey showed that optimism was in short supply. The CCI reading in November 2017 (47.3) had dropped 6 percent over the diffusion index recorded in September 2017 as well as November 2016. Additionally, the November survey also showed comparatively higher expectations for inflation and unemployment, besides lower expectations for growth in income and betterment in household financial conditions in the future.

The next CCI reading, expected shortly, will tell whether or not that pessimism is sticky. As the illustration shows, consumer confidence has surged considerably since the PML-N government took over in June 2013. The index was at 37 in May 2013 – the month of last general elections – and crossed 50 – the point where optimism overtakes – in January 2016. But optimism had peaked out by March 2017. Let’s see how hopeful consumers are, or otherwise, about the economy in 2018.