The latest GDP numbers are proving that the economy cannot be decoupled from politics. Ever since political impasse began in 2022, the GDP growth has been down, inflation has skyrocketed, and resultantly, unemployment and poverty are on the rise.
The deterioration is linked to both global economic factors and domestic political chaos, which has pushed successive governments to take sub-optimal decisions while the private investment is shying away and drainage of both human and financial capital is rampant.
The GDP growth is estimated at 1 percent for the 2QFY24, and the number is positive mainly due to better agriculture performance whose growth is said to be at 5 percent while the industrial economic shrinkage continues to have fourth straight quarter of negative growth and the service sector remained flat.
The previous year was bad for the rural sector, especially in the flood-affected areas. This year low base amid better soil conditions (after the floods) has yielded significant improvement in almost all the crops and cotton ginning. The performance is demonstrated in exports where the food exports are up by 54 percent in 8MFY24 year-on-year.
Having said that, growth in agriculture appears to have been somewhat padded, as the degree of increase in the wheat and cotton numbers appears to have been windowdressed. Cotton output has reportedly been overstated by nearly two million bales compared to reported arrivals, whereas it may be too early for GoP to declare ‘massive’ increase in wheat output as crop is yet to be fully harvested. It seems indicative performance has been used to declare a ‘turnaround’ in agricultural output.
The misery in the manufacturing sector is not ending anytime soon. Inflation and exchange rate adjustments have broken the back of consumers. Discretionary spending is vanishing, and numbers are seriously down in non-essential sectors such as automobiles, white goods, cement, steel, etc. The slowdown in durable capital goods and real estate is hurting the economy badly.
There is no respite for urban dwellers where large employing segments such as construction and real estate, and large-scale manufacturing, as well as wholesale and retail trade all are struggling to grow from an already low base.
LSM growth was flat in the last quarter after five consecutive quarters of negative growth. Although, till January 2024, LSM index growth stayed in negative for 19 months, which raises serious doubts on the prospects of macroeconomic stability. The sector is mired in challenges caused by non-stop increase in energy prices, high interest rates, increasing incidence of taxes, and sluggish demand due to massive increase in retail prices.
The recovery from a low base is likely to be in food and pharmaceuticals in the 2HFY24, while sectors such as automobile and textile are expected to remain deep in red.
The worst-hit in the second quarter is in the employment intensive construction sector which is down by a massive 18 percent in the 2QFY24 over a negative growth during the same period of last year. The decline is evident in cement, steel, and general government spending on infrastructure.
The overall energy consumption has shrunk, as petroleum consumption is down 13 percent in 8MFY24, and the electricity consumption is still shying from its peak in FY22. In FY23, the units sold were less than those in FY21, and the downward journey continues in FY24 - as the net generation in 8MFY24 is down by 1 percent and the year-on-year growth is in red for consecutive five months.
In the services sector, the biggest contributor to GDP and employment is wholesale and retail trade, which has remained flat over the last quarter. In addition, transport and storage are growing at a snail’s pace from a low base last year. Even sectors such as education and health have shown high growth in an otherwise depressed last year and were in negative in the first two quarters of this year. That is alarming for a growing country with overall poor health and education indicators.
The question is how long will this low growth trap continue? The depressed cycle is not likely to reverse anytime soon as tightening policies under the IMF (International Monetary Fund) umbrella shall continue. The Fund’s concern is to manage balance of payment situation and is least bothered about economic growth; and the authorities may wish to spur growth; however, they lack tools.
To achieve high growth, the basic ingredient is investment. The government doesn’t have any fiscal space to stimulate the economy through its traditional way of development spending on brick and mortar. The state is attempting to rely on G-to-G investments, which at first are not likely to pour in large numbers and whatever investment comes in would not be without strings attached and may hurt the country in the medium to long term.
On the flipside, the private sector is focused on disinvestment by taking the savings out of the country while skilled human resource is moving abroad for better economic opportunities. Without reversing this trend, reviving growth remains a mirage.
And to boost investment, confidence revival is imperative and that cannot happen without continuity of policies and political stability. Given the current situation, which is strongly characterized by political instability, employment and per capita income levels are likely to remain depressed.
Copyright Business Recorder, 2024
Ali Khizar is the Head of Research at Business Recorder. His Twitter handle is @AliKhizar
Comments
Comments are closed.