ePolicy-induced import squashing, and keeping policy rate at 15 percent to taper inflation which is now expected to remain above 20 percent has done the damage necessary to slash growth, now expected to trail 2 percent, lower than earlier expectations of 3-4 percent. Current account deficit, the herculean of all tasks, is coming in check. Demand contraction is desirable for policy makers but that is not exactly a cause for celebration for either businesses or consumers.
For the first time since Jun-20—more than two years ago during the peak of Covid-19—business confidence in Pakistan (as survyed by the SBP) plunged below the threshold of 50. Businesses that persevered through the last year have become less and less optimistic since Oct-21, now in the red zone. Consumers have been lacking in confidence for a while. The last time consumer confidence was above the 50 threshold (read description in the infographic to understanding how the index is calculated) was late September 2018, wavering above and below the threshold during the year and continuing to remain in the 40s. In May-22, consumer confidence hit its new record low since September of 2012. Suffice to say, confidence amongst both consumers and businesses is lower than ever. The gap between consumer and business confidence, meanwhile is also narrowing. Businesses are catching up with highly pessimistic consumers.
Though both consumers and businesses expect confidence to grow over the coming months, it is hard to believe that will actually materialize given SBP’s continuned battle on imports which is sending chills down many a big businesses spines (automobile and phone assemblers), persistently high policy rate which is prohibitive for private sector borrowing, and continually high expectations for inflation. Add to that the atrocious handling of devastating floods in the country. If that doesn’t plunge consumer confidence, what ever will?
Inflation expectations for both economic agents (businesses and consumers) too remains persistently high; confidence in the government’s ability to bring it under control at its near-lowest. Futher monetary policy tightening at the same cannot be ruled out. Consumers are also solidly pessimistic about unemployment while firms optimism about business activities, their total number of employees, quantity of raw material purchase, and total orders booked is shrinking. One could very easily disregard confidence surveys for being too naunced or too biased as they typically just capture the pulse of the economy and how people feel about its direction, a feeling not always grounded in quantitative data. It is clear though that at least today, they are right on the money.
Comments
Comments are closed.