PRIME’s latest report: Economic prosperity ‘improves’ amid rising energy constraints

ISLAMABAD: Economic prosperity improves amid rising energy constraints, while purchasing power continues to decline, according to PRIME’s latest report, “Pakistan Prosperity Index”.

Over November 2020-October 2021, economic prosperity has improved by 1.5 percent, the report noted.

The improvement in overall country’s economic performance can be attributed to higher business activity on the back of rising domestic and international demand of goods and services, decline in supply chain distortions and return to normalcy.

The trade volume witnessed an increase of Rs538 billion Y-o-Y and Rs3.8 billion M-o-M on account of an increase in domestic and international demand. In M-o-M trade growth, exports witnessed an increase Rs19 billion, while imports witnessed a decline of Rs15 billion in October 2021.

Purchasing power continues to decline as the Y-o-Y inflation was reported at 9.2 percent, while the M-o-M inflation clocked at 1.9 percent. The prevalent high levels of inflation are due to soaring supply-demand gap emanating from monetary expansion carried out through commercial banks’ investment in government securities, higher inflow of remittances, falling productivity and surging petroleum prices.

Large Scale Manufacturing (LSM) output posted a growth of 1.9 percent M-o-M, while a decline of 1.2 percent Y-o-Y. The slowdown in manufacturing activities on yearly basis is due to significant increase in the energy and input prices, while monthly increase is associated with rising demand. The automobile industry maintains leading position with the growth of 1.2 percent, while textile and food industries having weightage of 21 percent and 12 percent, showed growth of 0.1 percent and 0.4 percent.

The private sector borrowing from banks has been on an upward trajectory with Rs197 billion Y-o-Y and Rs19 billion M-o-M increase. The borrowing continues to increase despite slight hike of 25 basis points in policy rate and indication of further hike in coming months. However, the borrowing is likely to slow down after recent hikes in the policy rate.

The economic performance is encouraging but caution is needed due to prevalent challenges. The burgeoning current account deficit on the back of significant increase in the international commodity and energy prices and the resultant hike in the policy rate will contribute to slow down in the economic activities in the country.

This is the cardinal factor in the yearly decline in manufacturing sector output.

The surging global energy prices translates into domestic inflation thus, declining the purchasing power/real incomes of the citizens and hinders the economic activity.

Copyright Business Recorder, 2021