Business Community most pessimistic on economy in last two years

July 22, 2019 (MLN): The State Bank of Pakistan has dropped the latest report on Business Confidence Survey (BCS) for June 2019 and the results show that the business community is most pessimistic about the economy at present, than it has been in the last two years.

A Business Confidence Survey (BCS) serves as an indicator for economic activity as they are particularly designed to monitor and forecast the short term changed in the economy.

In most basic terms, a BCS is a bi-monthly telephonic survey conducted in second half of even number months (i.e. February, April, June, August, October and December).

This survey targets large firms in manufacturing, services, construction, wholesale and retail trade and financial services sector spread across the country to seek their opinions on production, employment, demand for credit and economic conditions etc.

The survey data is then used to construct a business sentiment index, which significantly extends the information base for SBP’s forward looking policy making.

The overall business confidence in June 2019 declined from  46  in  April 2019 to 43 which  shows that pessimistic views of business community about the economy have further increased, resulting in the lowest level of Business Confidence Index (BCI) since its inception in October, 2017.

Disintegrating the overall index into industry and services, we see that both sectors remain below 50 and have individually fallen from the indices reported in April 2019 as well.

In case of industry, the index has decreased from 45 in April 2019 to 41 in June 2019; while that for services decreased from 47 to 44 during the same period.

The business community’s current perception of the economy has decreased from 40 in April to 36 in June.

The SBP points out that the Current Business Confidence Index (CBCI) has remained in the negative zone (below 50) for the last six waves, the latest one inclusive.

For the latest wave, the decline is more pronounced in the services sector.

A disaggregated distribution of responses shows that the share of businesses holding a very negative opinion of the current economy has increased by the largest margin compared to the last wave.

On the other hand, the business community’s future perception of the economy has also decreased a little compared to April, but at least the index remains in the positive zone.

Looking another way, SBP’s survey shows that the Current Employment diffusion index have decreased further within the negative zone from 48 in April 2019 to 47 in the current wave.

However, the breakdown of expected employment by economic activity shows interesting results; the firms in the industry sector are expecting to decrease their employment in the next six months, while the services sector firms are still expecting to hire more employees in the next six months.

.

*Note: All the tables and charts used in this article are a courtesy of SBP's Business Confidence Survey Report for June 2019.

Copyright Mettis Link News