- Home
- Business
- Potential risks may diverge satisfactory growth prospects from optimal path: Economic Outlook
Potential Risks May Diverge Satisfactory Growth Prospects From Optimal Path: Economic Outlook
Fahad Shabbir (@FahadShabbir) Published June 29, 2022 | 03:30 PM
ISLAMABAD, (UrduPoint / Pakistan Point News - 29th Jun, 2022 ) :The finance ministry in its latest report released here on Wednesday said that the country's growth prospects were expected to remain satisfactory, but the number of potential risks might diverge it from optimal path.
According to Monthly Economic Update and Outlook for June 2022, the economic growth in Pakistan was facing challenging situation due to wider macroeconomic imbalances.
"The current account deficit which remained high during the first three quarters of current fiscal year, may decelerate by end of this fiscal year and onwards," the report says adding the delayed pass-through of international oil prices into domestic energy products may increase inflation.
Inflationary pressure may ease once international commodity prices start decline and stabilize, it adds.
According to the report, the cyclical position of Pakistan's main trading partners was somewhat deteriorating. Their central banks are raising interest rates to counter inflation thus leading to possible recession in those countries.
Second, the report says, SBP may further raise domestic interest rates, adding the demand management policy of SBP may not be very effective as the current waves of inflation are largely caused by supply constraints and increasing international prices, especially commodity prices.
The exchange rate depreciation was also a source of concern as it makes the imported raw material more expensive, it adds.
Third, the persistent rise in domestic consumer prices is eroding real incomes, limiting the spending power of consumers and investors.
It says, these risk factors may challenge the macroeconomic environment and growth prospects, especially by negatively affecting the temporary cyclical output gap.
The economy would tend back to potential output in the long runs and sound policy responses may lay the basis for a sustainable long run growth trajectory.
"This should be accompanied by measures that aim to strengthen the growth of Pakistan's potential output.
These measures need to include the creation of a beneficial investment climate, confidence promotion and stimulus for promising economic initiatives with high growth potential," it adds.
According to the report, the current account balance may profit from sound demand management policies. In the longer run, elevating the growth rate of potential output reinforces the supply side of the economy, accompanied by neutral demand management will bring the CAB onto a long run sustainable path.
The report further says that despite achieving a real GDP growth of 5.97 percent in FY2022, the underlying macroeconomic imbalances and mounting international risks are depicting challenging outlook especially pertaining to external sector.
International commodity prices, especially oil and food prices are the main external drivers of inflation whereas domestic supply chain and market expectations also played an important role to determine inflation.
It is mentionable that YoY inflation has been rising since September 2021. This acceleration is expected to continue in June 2022 The input situation for Kharif 2022 is satisfactory and it is expected that the agriculture sector will continue to augur well on account of continued government support.
On industrial sector, as expected, Large Scale Manufacturing (LSM) output contracted in April as compared to March. In fact, LSM activity remained strong both in terms of underlying trend growth as in its cyclical position.
Nevertheless, LSM may contract in May as compared to April mainly due to strong negative seasonal effects. But on Year-on-year basis, LSM is expected to show continued solid growth.
In May 2022, the MEI continues to issue a strong economic signal mainly due to the continuing robust performance of LSM, which is known to exert significant multiplier effects on other sectors of the economy.
Meanwhile, the tax collection by Federal board of Revenue (FBR) has maintained its growth momentum by posting a 28.4 percent increase during Jul-May FY2022.
Related Topics
Recent Stories
Rock-solid Ruud racks up season-leading win in Barcelona
At UN, Iran says it will make Israel 'regret' reprisals
G7 hears calls for 'critical' Ukraine aid
EU seeks to leverage might to confront China, US challenge
5 Customs officials martyred as their vehicle ambushed by terrorists in D I Khan
Pak-New Zealand match called off due to rain
NHA restores traffic on roads affected by recent rains in Balochistan
China to fully support Pakistan's efforts against terrorism: Ambassador Jiang
U.S. envoy calls on Foreign Minister Ishaq Dar
Poland arrests man over suspected plan to kill Zelensky
EU wants to ease youth movement to and from UK
Police foils attempt of supply mainpuri raw material
More Stories From Business
-
Oil jumps more than 3% on Middle East worries
41 minutes ago -
Tokyo's Nikkei index tumbles 3% in morning trade
51 minutes ago -
Pakistan's total liquid foreign reserves reach $ 13.37 billion
11 hours ago -
Stock markets rise as traders consider US rate outlook
12 hours ago -
Business community alarmed by alleged Cigarette tax violations
12 hours ago -
High FED on cigarettes demonstrates positive impact
12 hours ago
-
PTCL posts 14 % revenue growth
12 hours ago -
Prudent policies, reforms poised to result in sustainable economic growth: Governor State Bank of Pa ..
13 hours ago -
ICCI resolute to turn Islamabad an ecofriendly city: Khalid Malik
13 hours ago -
Beijing's GDP up 6 pct in Q1
15 hours ago -
China's Q1 goods, services trade surplus exceeds 60 bln USD
15 hours ago -
Pakistan Stock Exchange (PSX) loses 43 points
15 hours ago