Analysis: Pakistan Economic Review By Topline Research

Karachi: Research houses started issuing their commentary on Economic Survey 2020. Here is the commentary of Topline Research, prepared by Syed Atif Zafar(CFA):

Impact of COVID-19 clearly visible

Pakistan’s GDP is expected to contract by 0.4% YoY in FY20, which will be the first time since FY52. The decline in GDP is likely due to 2.6% YoY fall in Industrial output as a result of business closures amidst COVID-19 related lockdowns. The Services output is also expected to reduce by 0.6%. YoY. Some respite is expected on the back of Agriculture output, which is anticipated to grow by 2.7% YoY.

This is perhaps the first time, Pakistan is reporting GDP growth in Economic Survey based on full-year estimation compared previous practice of estimation based on 9M data as the impact of COVID-19 is too significant to be ignored.

We had already lowered our GDP projection in our report titled ‘Pak GDP growth forecast and KSE-100 Index target lowered’ on April 4, 2020, where we had highlighted that Pakistan is likely to report 0.0-0.5% YoY GDP growth in FY20E, where in a worst case scenario Pakistan’s economy can shrink by 0.5-1.0% YoY.

Historically, Private Consumption has significantly contributed in Pakistan’s economic growth. The pattern was likely to continue, however, due to COVID-19, private consumption suffered significantly, dropping to 78.5% of GDP in FY20 compared to 82.9% of GDP in FY19.

The Agriculture sector, which contributes 19.3% in Pakistan’s GDP, recorded an increase of 2.67 % YoY – lower than the government’s start of the year target of 3.5% YoY, but higher than last year’s growth of 0.58% YoY and preceding 5-year average of 1.81%.

The growth in Agriculture was driven by 2.90% YoY higher output of Important Crops led by Maize (6.0% YoY), Rice (+2.9% YoY) and Wheat (+2.5% YoY). On the hand, Cotton (-6.9% YoY) and Sugarcane (-0.4% YoY) outputs declined.

Looking at the breakup and their respective weights, we expect the government to revise down Agriculture growth for FY20.

The Industrial sector, which accounts for ~20% of GDP, registered a decline of 2.6% YoY. Within the Industrial space, Large Scale Manufacturing (LSM, 9.5% weight in GDP) is likely to decline by 7.78% YoY.

LSM has declined by 5.4% YoY in 9MFY20 and 23.0% YoY in Mar-2020. With an average 16% YoY decline in 4QFY20E, we can see LSM decline of 7.78% YoY in FY20.

The sectors that are likely to witnessed the most decline in LSM are Automobiles (-36.5% YoY), Wood Products (-22.1% YoY), Coke & Petroleum Products (-17.5% YoY) and Electronics (13.5% YoY).

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