To provide independent biannual information about the state of economic activity in Pakistan, PIDE has launched Business Barometer of Pakistan. The Business Barometer is based on the survey of firms' assessments of the economy through their own activities.
We have tried to get from firms information on their production, sales, inventories, prices, wages, employment and investment. The survey was conducted in January.
We asked for information on the selected variables for the last six months, July-December, 2006. This information should be relatively easy since most managers will have a very real feel for events of the last six months even if they have not finally closed their books.
We then asked for their expectations for the same selected variables over the coming six months-January to June 2007. Once again, the information provided by firms would be very useful given that they would have good knowledge of things to come from their order books and forward contracting arrangements.
We intend to repeat the survey every June and January. This simple device allows us to access market perceptions of the economy in a very real way. And we know from global experience that market perceptions are an important source of information on the economy that both policymakers and market participants can use.
We hope that this PIDE initiative will lead to the development of a diverse set of market sentiment indicators that all economic agents as well the government will find useful as a barometer of coming economic activity.
THE SURVEY:
For this survey we are focussing on firms that are listed in the stock exchange. In that sense we are dealing mainly with large business. While this was largely because of the convenience and management of the survey, it is also true that large firms because of their weight in the economy may provide us with more information on developments in the economy.
The questionnaire was sent to all the firms listed in the Security Exchange Commission of Pakistan. The respondents included banking sector, textile sector, sugar and allied industries, cement, oil and gas exploration companies, engineering, automobile assemblers, automobile parts and accessories, fertilisers, pharmaceuticals, chemicals, banaspati and allied industries, food and personal care products and glass and ceramics. Some 10 percent of the firms responded which gives us a fairly good sample to generalise form. We will over time improve the coverage while also ensuring that we do develop a panel of respondents to ensure comparability across semesters.
OVERVIEW:
First addition of the Business Barometer of Pakistan is based on the views of firms listed at the Karachi Stock Exchange (KSE). It consists of their opinion about the overall performance of the economy such as growth and inflation during the second half of the year 2006 and expectations about the first half of the 2007. Further it also includes assessment of level of their activities during the survey period and expectations about the activities in the next half of the year.
The analysis reveals that overall growth of the economy during last six moths remained stable. Further, firms also anticipate stability in growth of the economy in the current half of the year. Although most of the firms expect the same level of growth but the net balance remains negative. This implies that the growth target of 7.0 percent for the year 2007 could not be achieved.
Firms are positive about their own activities. Their future expectations about the activities are also high. Moreover there is rising trend in the wages and other input prices and they are expected to rise in the near future.
The picture about the general price level, rate of inflation, is alarming. Most of the firms' assessment is higher price in the last half of the 2006 and their expectation is that these would remain higher in current half of the 2007 also. This indicates the demand for tough policy measures by the authorities to curb looming higher expected inflation.
In summary we can say that the analysis from the survey data reveals that there is stability in current and expected growth. In case of prices, current and expected prices are high. Economic activities of the business sector indicate that current and expected production and sales are high.
STABLE ECONOMIC GROWTH:
Looking at the last 6 months of 2006, a majority of firms, 59 percent, saw stable economic growth while 32 percent firms reported slower growth than the previous year. Only 8 percent of the respondents indicated a faster growth in economy during the survey period.
In terms of their perception regarding the economic growth in the next six months, 73 percent reported that it will grow at the same pace, 23 percent reported that it will grow at a slower rate while only 4 percent expected that it will grow at a faster rate. In case of expected pace of growth majority of firms perceived that growth will remain at the same level.
PRODUCTION IS INCREASING!
When asked about their production level, the picture improves. The responses indicate that during the July-December, 2006, 43 percent had a higher level of production as compared to first half of the same year. While 32 percent indicated no change in the volume of production, and 24 percent indicated that their production was lower than the first half of the year.
In terms of the plans for the next six months, 65 percent responded that they expect their production/size of activity to rise, 32 percent expected the same level and 3 percent expected a fall in their production. Quite clearly, business is growing and is optimistic about future growth.
The net balance (difference between the percentages expecting improvement over the percentage expecting a decline) is positive and growing-reconfirming that the situation may be improving for trade and industry. The significant increase in the net balance is noteworthy and a sign of the confidence of the business community.
SALES INCREASED WITH HIGH EXPECTATION:
The picture on sales appears to be confirming the positive situation. It shows that domestic demand is strong and expected to remain strong. However the demand for exports remains uncertain. 45 percent of firms indicated that their sales in the domestic market during the last 6 months of 2006 were higher than the previous half of the year. 19 percent firms recorded decrease in their sales. However, there is no significant change in the sales of 33 percent firms.
Majority of firms (68 percent) are expecting that their sales in the domestic market would increase in the first 6 months of 2007, 24 percent expected it to stay the same while 7 percent expected a fall in their activity in the domestic market.
Interestingly, in international market, 40 percent reported a decrease in the sales, 36 percent reported an increase in the sales activity in the international market, and 23 percent reported no significant change. The net balance is -3 percent confirming some difficulties in export markets in the last 6 months.
Firms are optimistic about the international market. Most of the firms (53 percent) are hoping that their sales would increase. Unlike current situation only 20 percent are expecting that sales may decline, and the rest are expecting no change. The net balance has changed to a +33 percent indicating that the order books for exports have turned around.
The Pakistan Institute of Development Economics (PIDE), a premier policy Research Institute of Pakistan, has led the field in developing quality research in social sciences and informing public policy. PIDE is an autonomous body under the auspices of the planning commission, government of Pakistan.
In 2006, PIDE has been granted Degree awarding status by the Government of Pakistan and has therefore on the verge of becoming a university. In a recent restructuring, PIDE has developed several new initiatives such as the PIDE Working Papers Series, PIDE Policy Viewpoint and Weekly Seminars. It has been very active in the area of opinion development and formation actively breaking new grounds into several areas such urban issues, governance and institutions and civil service reform.
The Business Barometer of Pakistan is one of the new research initiatives to provide biannual information about the business sector's assessment and expectations about the state of economic activity in Pakistan.
(To be concluded)
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