SBP lists factors impeding economic activities

[Naveed Yaseen]

KARACHI (April 21 2009): Global recession, severe power outages and bad law and order conditions have taken their toll on domestic economic activities, said the State Bank of Pakistan in its monetary policy statement on Monday. The SBP said that dismal performance of large scale manufacturing (LSM) in July-February, FY09 with negative growth of 5.7 percent, and weaker than target growth of agriculture sector point towards the weaker real economic activities of commodity producing sector for FY09.

In tandem with weak performance of commodity producing sector, services sector is also likely to show a weaker growth in FY09 compared to FY08. However, the agriculture sector is expected to register a growth of 3.0 percent due to better output of major crops in Kharif season (particularly of rice and cotton) and expected bumper crop of wheat of around 23.5 tons.

This will provide some grace to overall real GDP growth, though agriculture performance will be lower than the original target of 3.5 percent. The SBP pointed out that LSM sector growth, in particular, the performance of export driven industries (particularly, textiles) has been negatively affected amid energy outages, deteriorated law and order condition, and most critically, weaker external demand due to the recessionary tendencies in most of the major trading partner countries.

The domestic demand for automobile, electronics and other consumer durables has also remained weak which is attributed to high interest rates on consumer financing and increased risk averseness of commercial banks about consumer financing due to rising NPLs in this sector, the SBP added.

Services sector is also expected to register a slower growth than the target of 6.1 percent for FY09. As a result, the prospect of overall growth remains modest and the economy is expected to register a growth of 2.5 to 3.5 percent in FY09, the SBP said.

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