Business survey shows economic slowdown

[Naveed Yaseen]

By Mehtab Haider
ISLAMABAD: A business barometer survey, conducted by Pakistan Institute of Development Economics (PIDE), reveals that the majority of private sector entrepreneurs expect a slowdown in economic activities and mounting of inflationary pressure in the year 2008.

The Planning Commission’s PIDE launched the barometer in a bid to provide independent biannual information about the state of economic activities in the country.

The business barometer is based on the survey of firms’ assessment of economy through their own activities. It tried to get information on the firms’ production, sales, inventories, prices, wages, employment and investment.

The survey was conducted during August this year. The analysis reveals that during the first half of 2008 economic growth declined as compared to the second half of 2007 as majority of firms, 68.3 per cent, saw slow economic growth while 18.3 per cent expected same level of growth.

However, only 13.3 per cent of the respondents indicated a faster growth in the economy during the survey period. In terms of perception of the business sector regarding economic growth during the second half of 2008, 76.7 per cent firms anticipated it will grow at a slower rate, 18.3 per cent firms predicted growth at the same pace, and only 5 per cent expected growth at a faster rate as compared to the first half of 2008.

The financial sector is expecting higher level of inflation during the second half of year 2008 as compared to level of inflation prevailed during the first half of 2008. In case of non-financial sector all the firms are expecting higher level of inflation.

The responses indicate that during Jan-June, 2008, 53.2 per cent of firms had a higher level of production as compared to the second half of 2007. While 25.5 per cent indicated no change in the volume of production and the rest of the firms (21.3 per cent) indicated that their production was lower as compared to the second half of 2007. Majority of business firms (44.7 per cent) indicated that their sales in the domestic market during the first half of 2008 were higher than the second half of 2007. The firms which recorded decrease in their sales were 27.7 per cent. However, there is no significant change in the sales of 27.7 per cent firms In terms of plan for the next six months 36.2 per cent of the business firms are expecting that their sales in the domestic market would increase in the second half of 2008, 36.2 per cent expected it to stay the same while 27.7 per cent expected a fall in their activity in the domestic market.

The analysis shows that non-financial sector is conscious about their sales in domestic market during the second half of 2008. Furthermore the past experience about expectations indicates that sales in the domestic market would remain the same as deviation in the respondents favouring higher sales in the domestic market is ñ26.5 per cent.

In case of the prices of final goods, 87.2 per cent of the respondents experienced an increase in the prices of their product during the first half of 2008.

For 6.4 percent, it remained the same, while for 6.4 per cent the prices fell from the second half of the 2007. Majority of the firms (89.1 per cent) are expecting that the prices of their final products will increase during the second half of 2008. In the coming six months, only 10.9 per cent firms are expecting that it will stay the same while none of the firms are expecting a fall in the price of their product.

Final product prices would be even higher than the expectations of the business firms as deviation in the respondents favouring higher product price is 10.5 per cent. Wage pressure is also building up along with the inflationary expectations.

Only 2.2 per cent of the business firms experienced a wage decline in the first half of 2008 and 82.6 per cent of firms reported a rise in wages in the first half of 2008 over the second half of 2007, while 15.2 per cent reported that the wage level remained the same during this period in the coming six months, 80.9 per cent continue to expect wage inflation, 19.1 per cent anticipate stable wages and none of them are expecting wages to decline in the coming six months. Furthermore 17.7 per cent deviation confirms expectations about higher wages.

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