February 12, 2021 (MLN): The overall business confidence improved further by 1 point and reached 56 points in December 2020, from 55 points in October 2020.
This is the third consecutive wave of Business Confidence to remain in the green zone, which reveals the persistence of positive opinion of the business community regarding economic and business activities in Pakistan.
The latest results of the 20th wave of Business Confidence Survey (BCS), conducted by the State Bank of Pakistan (SBP) in collaboration with the Institute of Business Administration (IBA), revealed that the sentiments of the business community remained in the positive zone for the third consecutive wave, which reflects optimistic views of the business sector regarding economic and business activities in Pakistan. Resultantly, Business Confidence Index (BCI) increased in December 2020, as shown in the figure below.
The survey results reflect that the improvement in the current wave of BCS is largely driven by the industrial sector. While services sector maintained the previous level of positivity in their sentiments during December 2020.
The Business Confidence Index for industry, increased by 5 points from 55 in October 2020 to 60 in December 2020 and reached the highest level since the inception of this survey in 2018.
According to the survey report, the headline index “Overall Business Confidence” is comprised of two sub-indices; “Current Business Confidence Index (CBCI)” and “Expected Business Confidence Index (EBCI)”. The opinion of participants of BCS on account of current economic and business conditions reached the highest since 2018 and entered into the positive zone after 16 waves. As far as the expectations regarding economic and business conditions in the next six months are concerned, it remained the same.
The CBCI improved by 2 points in October 2020 to 51 in December 2020 wave. This improvement in current business confidence was largely driven by the industrial sector, which increased significantly by 7 points from 50 in October to 57 in December 2020. However, the services sector improved slightly within the negative zone from 48 in October 2020 to 49 in the current wave of BCS.
On the other hand, EBCI remained the same at 62 in December 2020. However, change in future expectations from both sectors remained contrary to each other as the industry sector is expecting an improvement in future economic and business conditions, while the services sector expecting these conditions to deteriorate within the positive zone (compared to the previous wave’s expectations).
The EBCI for the industry sector jumped from 60 to 64 while for the services sector, it plummeted from 63 in October 2020 to 61 in December 2020.
As far as Purchasing Managers Index (PMI) is concerned, it reached its highest level in the month of December 2020 since the inception of BCS. The PMI increased significantly from 53 in October 2020 to 56 in December 2020. As per the survey report, the increase in PMI value is attributable to an increase in the firm’s business activities, a surge in the firm’s total order books, and a rise in purchasing of raw materials in the recent wave.
The survey also found that the perceptions about employment remained static as the Current Employment Diffusion Index remained at 49 in the current wave. while Expected Employment decreased within the positive zone from 57 in October 2020 to 55 in the current wave. Interestingly, for industry, the expected employment index increased slightly from 56 to 57, while for the services sector it decreased from 57 in October 2020 to 55 in the current wave.
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