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April 17, 2019

Pakistan’s GDP growth to hover around 5 percent in 2019: GECS

Business

April 17, 2019

LAHORE: Pakistan’s economy is likely to grow by around 5 percent this year, but it faces challenges in the shape of alarmingly large fiscal and current account deficits, both running around 6 percent of the gross domestic product (GDP).

These are the findings of Global Economic Conditions Survey (GECS) report for the first quarter (Q1) of 2019, prepared by Association of Chartered Certified Accountants (ACCA) and Institute of Management Accountants (IMA).

The report said Pakistan was currently negotiating a bailout package worth around $6 billion with International Monetary Fund (IMF) in order to meet its external debt obligations; however any conditions would almost certainly involve tighter fiscal policy and market-friendly reforms.

The GECS also found that (business) confidence improved in Pakistan in Q1, perhaps on expectations of a breakthrough with the IMF where negotiations had appeared deadlocked late last year.

It added that South Asia region, dominated by India and Pakistan, saw a big jump in confidence, probably helped by signs of progress on latter’s IMF bailout parleys.

On the other hand, the report said Indian economy was expected to grow strongly this year by around 7 percent. Over the course of Q1 the central bank, the Reserve Bank of India (RBI) cut interest rates by 25bps (basis points) and a budget introduced fiscal easing measures, including cash payments to farmers.

A significant amount of infrastructure spending is also now coming on stream, but there is a high degree of political uncertainty ahead of May’s elections in India, the report said. Furthermore, the survey found the global economic confidence on the lower side in the period under review.

The global poll of 1,355 accountants shows that all key regions reported a bounce in confidence with Asia Pacific and the Middle East seeing the biggest gains. However, in all regions except the Middle East confidence is lower than a year ago.

More encouragingly the global orders index remained virtually unchanged in the latest GECS. This index held up better than confidence in recent quarters and underscores the message that GECS is pointing to slower global growth this year but not a major collapse.

The survery also revealed easing concerns about inflation with 48 percent of respondents expressing concern about rising costs, down from 52 percent in Q4 2018. According to the survey just 22 percent of global respondents said they had problems accessing finance suggesting fairly easy financial conditions.

Furthermore, 45 percent of respondents globally are considering layoffs, while 17 percent are mulling taking on new workers. Additionally, the report found that 36 percent of respondents were considering scaling back investment in new capital projects, compared with just 16 percent who were looking to increase investment in new projects.

The possibility of suppliers going out of business being a concern for just 12 percent of respondents – unchanged from Q4 2018, the report said. According to the ACCA economists, whilst the confidence index improved in Q1 2019 compared to Q4 2018, it remains at a fairly low level and consistent with a slowdown in growth.

It should be recalled that confidence and activity indicators are all significantly lower than a year ago. But the orders index is little changed in Q1 compared with Q4 last year and suggests that the slowdown in growth will not be too severe this year.

The survey analysed that even before the increasing evidence of a growth slowdown emerged the inflation picture was generally benign and it has become even more so recently as demand has slowed. The GECS also showed a fall in concern about rising operating costs. This is the third quarterly fall in a row and reduces cost concerns to the lowest since Q1 2018, it added.