You know the biggest and only strategy that goes into playing the board game snakes and Ladders? Avoid the snakes. Except, that is not a strategy. The entire game hinges on luck. Player A is hoping very hard that the number the dice lands on does not take them to the mouth of a snake. They hold their breath and wait. If they get a ladder, felicitations; but that looming head of the snake can dash dreams fast. This is not dissimilar to how the economy in Pakistan is run. There is a lot of “here’s hoping”, a few wait-and-sees, and a whole lot of rolling the dice to see which number we land on. More often than not, we find ourselves staring at the mouth of the snake, ready to slide us back where we started, a few steps forward, a snake-sized slide down. It hasn’t gone unnoticed.
One only has to head over to the two perception surveys that the SBP now diligently conducts every month. Before Jan-23, these used to be conducted once every two months, so it is safe to assume that recent trends are more immediate. And they paint a gloomy picture. For the most part, both consumers and businesses are pessimistic about the state of the economy as it currently stands, and as they expect it to be over the next six months. Notably, there is a marked difference in how perceptions play for consumers and businesses. While consumers have rarely been optimistic about the economy, businesses tend to be more easily swayed. Changes in monetary or fiscal policies—one that raises or reduces interest rates and taxes respectively, or announcement of subsidized credit facilities (say, TERF during covid) could easily influence the private sector to feel more optimistic about the economy. Consumers don’t buy it that easily.
In fact, businesses and consumers have rarely been on the same page. Except for the period during COVID-19 when everyone unequivocally felt miserable about the economy, the two economic agents tend to feel very differently about the economy most months. In recent surveys, both businesses and consumers are less than optimistic about current economic conditions, though in Nov-23, businesses reported they are “expecting” the economy to improve ever so slightly in the next six months. This lays in sharp contrast to the quicksand the economy is in—starting from ongoing import restrictions as well as subdued demand and ending with inflation’s continued frenzy that will invariably raise costs. The SBP may cut interest rates moving forward but given how persistently high inflation is—in Dec-23, it stood at 29 percent, where inflation for housing, water, gas, electricity, and fuels category was 37.68 percent—such cuts may be more measured than one might imagine. Even so, the sentiments are changing for businesses, and for the better too.
To the contrary, consumers remain pessimistic about the future, despite two consecutive upticks in survey results for the months of October and November. What is however even more surprising is the survey question on inflation expectations. Both consumers and businesses have improved sentiments about inflation, still not optimistic (see graph for descriptor) but not as pessimistic as before, and more respondents are expecting inflation to be curtailed over the next few months. This is not grounded in any real changes to economic indicators—inflation is growing unbridled despite a monetary policy that has been holding on tight for months now. But perhaps, folks sitting at home believe it cannot get any worse than it already is.
Nevertheless, with few ladders in sight, and several snakes lined up, there isn’t much good news to head over to; and both consumers and businesses know it.
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