The headlines write themselves. The government and SBP’s self-congratulation on keeping economy afloat during the pandemic and tackling the virus itself by administering millions of people with the vaccine is well and over. It is time to talk about an economy slipping into crisis again. Inflation is high in part due to ballooning energy and commodity prices and current account deficit is growing as import bill mounts. This has put pressure on the currency. Uptil only a few months ago, the government was found celebrating the growth in auto and home loans, the latter a direct result of the mark-up scheme that was introduced to boost the housing and construction sector. Now, the SBP is backtracking trying to curtail these loans, directly or indirectly. The interest rate is back up, higher than expectation, and SBP has slapped limits on auto financing. It is chaotic.

While production across most large-scale manufacturing sectors is up, this is likely to not sustain over the fiscal year. From the business perspective, cost of production is increasing due to rising power tariffs, gas shortages, coupled with higher cost of inputs. Freight rates are skyrocketing as supply-chain snags persist while most global commodities are under inflationary pressure that translates to costlier imports. This has caused businesses to raise prices. Production is already showing slowdown. From the consumer perspective, monetary policy tightening translates to higher borrowing expenditure. Rising prices across consumer goods where incomes are stagnant means shifting consumptions trends and reduced overall demand.

This is very clearly reflecting in consumer and business confidence surveys conducted by the SBP. The latest round (Oct-Nov-21) shows that both businesses and consumers are less confident than they were in the last cycle about current as well as future economy conditions of the country. Whereas businesses were more confident two months ago, they are no longer as optimistic. In fact, the gap between business and consumer confidence has narrowed since Aug-Sep-21.

Between the two, consumers are more rattled. Their confidence has remained below the optimism threshold for over a year. Over 80 percent of consumers in the survey expect inflation to increase; of which 16 percent expect inflation to increase significantly. This is not unrealistic given current situation. This all is coupled with consumers’ expectations for unemployment to grow over the next six months. Businesses also expect the same, with both industry and services sectors expecting employment to fall. According to a similar exercise conducted by Gallup, 45 percent of businesses within the survey reported layoffs or fewer employees compared to a year ago. Naturally, this would continue to be concerning if cost-inflation persists, demand falls and production declines.