Pakistan’s real growth forecast stays unchanged: State Bank

KARACHI: The State Bank of Pakistan (SBP) on Monday said Pakistan’s macroeconomic outlook for FY25 has brightened considerably, supported by improving economic indicators, easing financial conditions and stronger external balances. With these developments, the real GDP growth forecast for FY25 remains unchanged at 2.5 to 3.5 percent.

According to the “State of Pakistan’s Economy”, Half Year Report FY25, released by SBP on Monday, the macroeconomic outlook depends on the evolving global economic and political environment, with three key risks: rising protectionist trade policies affecting exports, remittances, and commodity prices; spillovers from geopolitical conflicts; and a resurgence of global inflation due to tariffs and supply-chain constraints, tightening financial conditions for emerging economies.

However, the SBP said that, risks to the growth outlook remain skewed to the downside. While lower international oil prices can provide an upside, additional fiscal consolidation and less than expected wheat harvest may weigh down on growth.

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“The macroeconomic outcomes and developments have significantly improved the overall outlook for FY25 compared to the beginning of the year. While growth slowed in H1-FY25 compared to the same period last year, the latest data on high-frequency indicators suggest that momentum in economic activity is gaining traction”, the report said.

With stronger-than-expected growth in workers’ remittances, declining commodity prices, and sustained export momentum, SBP projected the current account balance range between -0.5 to 0.5 percent of GDP for FY25 that. This is anticipated to provide a buffer against reduced financial inflows and bolster external reserves.

Considering the improvement in fiscal accounts in H1-FY25 was majorly enabled by hefty SBP profit transfer and contained subsidy disbursements, the projection for fiscal deficit remains unchanged in the range of 5.5-6.5 percent for FY25.

Moreover, any further shortfall in tax revenue remains a major upside risk. The fiscal consolidation, tight monetary policy stance, ample stock of key food staples, and benign trends in global commodity prices are expected to keep overall inflationary pressures subdued for the remainder of FY25, the report mentioned.

According to SBP with steep disinflationary trend and recent movements in food and energy prices in domestic as well as in international markets, the projection of average inflation for FY25 has been considerably revised downward to 5.5-7.5 percent, from the earlier projection of 11.5-13.5 percent. These projections incorporate the expected increase in inflation in the last few months of FY25 due to fading high base effect, it added.

Similarly, sales of automobiles, cement, and POL products have picked up in recent months, and exports of high value-added textiles is maintaining a rising trend. The ease in financial conditions and lower global energy prices are other favorable factors expected to gradually support industrial and services sectors. The agriculture sector, however, continues to show subdued growth with the latest estimates indicating lower wheat production. However, given that import volumes are rising in line with activity in some large industries, any shock to global commodity prices could pose an upside risk.

While inflation is expected to stabilize around the lower bound of the revised projection range in FY25, the report highlighted several risks to medium-term outlook. These include global trade disruptions and related commodity price volatility in light of the reciprocal tariffs, the timing and magnitude of adjustments in administered energy prices, new revenue measures, and pressures on local currency due to movements in international currencies and weak financial inflows, the report said.

The report said that the macroeconomic outlook is contingent on how the global economic and political environment shapes up. In this context, there are three prominent risks.

First, the recent shift towards a more protectionist trade policies has already begun to take effect. These tariffs are impacting geopolitical contenders and key trading partners. Rising tariffs could disrupt trade and economic activity, having implications for EMDEs’ exports and remittances, and international commodity prices.

Second, the possible spillovers of ongoing geopolitical conflicts to global economy, in general and commodity prices, in particular. Third is concerning the resurgence of inflation globally due to tariffs and potential supply-chain constraints, and their implications for global financial conditions, which may adversely impact emerging economies.

Copyright Business Recorder, 2025