Pakistan’s Recession odds at 62%: Bloomberg

July 11, 2023 (MLN): Pakistan's likelihood of entering a recession is 62%, a recent survey conducted by Bloomberg among seven economists unveiled.

The economists' projections subjected Pakistan's economic outlook to meticulous scrutiny.

When questioned about the likelihood of a recession occurring in the next 12 months, the median estimate from a panel of 5 economists who responded put the odds at 62%.

A median of seven economists provided the following forecasts for Pakistan's several key economic indicators as surveyed by Bloomberg from July 04 to July 07.

Gross Domestic Product (GDP) Year-on-Year (YoY%) growth projections showed a mixed picture. The average estimate for 2024 shows a substantial growth forecast of 3.5%.

However, the economists' previous survey results indicate a contraction in GDP YoY% during the period, as earlier forecasted at 4% and 3.8% growth in 2024 and 2025. These diverging forecasts underscore the uncertainties surrounding Pakistan's economic performance.

Inflation, as measured by the Consumer Price Index (CPI) YoY%, is expected to cool down from current heights.

The economists' median estimate for the first quarter of 2024 is 15.4%, projecting a gradual decline in inflation over time, with forecasts of 11% in the second quarter of 2024 and a notable drop to 10.4% by 2025.

The current account balance as a percentage of GDP is anticipated to improve slightly, with a forecasted deficit of -2% by the fourth quarter of 2024 and -2.5% by 2025. These figures highlight the need for policy measures to address the country's trade imbalances.

Fiscal management is another area of concern. The economists project a budget deficit as a percentage of GDP of gradually decreasing to -6.5% average in 2024 and -5.5% by 2025.

Monetary Policy

Regarding monetary policy, the Central Bank Rate according to the economists’ forecast is expected to experience a gradual decline over time, with expectations of a 17% average in 2024 and a further decrease to 15.5% by 2025.

This indicates the central bank's intention to stimulate economic activity through reduced borrowing costs.

The Target Policy Rate, which influences borrowing costs for commercial banks, is projected to follow a similar pattern.

The economists' median estimates foresee a reduction from 22% in the fourth quarter of 2023 to 14.5% by 2025. These potential interest rate cuts aim to promote investment and stimulate economic growth.

NOTE: All figures are expressed as of the end of the quarter except for GDP.

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