2013-02-19 10:07:35 - Recently published research from Business Monitor International, "Pakistan Business Forecast Report Q2 2013", is now available at Fast Market Research
With general elections scheduled to be held this year, we believe that the ruling Pakistan People's Party (PPP), which heads up the present coalition government, faces an uphill struggle for re-election. The government's handling of the economy and its relationship with the US are likely to be its key political liabilities.
2012 was one of Pakistan's deadliest and most violent years on record, which makes the Pakistani Taliban's recent peace overtures all the more significant.
The economic data coming out of Pakistan of late paints a relatively encouraging picture with the economy looking poised to record a faster rate of growth this fiscal year (FY2012/13, July-June), in line with our expectations.
However, while key structural headwinds have somewhat receded, it does not
mean that they have been full resolved. Therefore, we are happy to keep our FY2012/13 real GDP forecast of 4.0%, just below the government's 4.3% target.
Our view for gradual weakness in the Pakistani rupee continues to play out well. Given the ongoing balance of payments dynamics in play, we expect this gradual depreciatry trend to persist largely unabated.
Full Report Details at
- www.fastmr.com/prod/536373_pakistan_business_forecast_report_q2_ ..
Despite the State Bank of Pakistan (SBP)'s aggressive dovishness over the past six months, we do not expect the central bank's reverse repo rate to be taken below the 9.50% mark, taking into account rising inflationary pressures.
The fiscal incentives introduced by the recently-finalised and longawaited Special Economic Zones Act, 2012 should help to alleviate the weak state of investment activity in Pakistan. As such, the new law is a welcome move from the government.
Major Forecast Changes
We have revised our official rupee targets to reflect our expectations for further weakness, as our previous projections proved to be on the conservative side. We expect the unit to weaken to PKR102.00/ US$ by end-2013.
In light of the recent acceleration in money supply growth, we have nudged up our end-FY2012/13 consumer price inflation forecast upwards to 8.0%, from 7.0% previously.
Key Risks To Outlook
Upside Risks To Inflation: Should external financing fail to materialise or should the government fail to mobilise its domestic resource base, it could result in further budgetary borrowings from the banking system, thus stoking inflation. Furthermore, still elevated global food and energy prices remain of particular concern from an inflationary standpoint.
Downside Risk To Policy Rate: While we do not expect any additional rate cuts from the central bank, we highlight that should the SBP's latest measure fail to result in a substantial improvement of economic activity over the coming months, then the likelihood of further easing down the line would certainly increase. Furthermore, given the looming general elections, political considerations will likely continue to weigh heavily on the central bank's actions.
Downside Risks To Growth: As previously mentioned, several structural factors continue to pose significant headwinds to growth. Should any of these intensify in the coming months, real GDP growth for the year could very well fall below our 4.0% projection.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Peace With The Pakistani Taliban?
- 2012 was one of Pakistan's deadliest and most violent years on record, which makes the Tehreek-e-Taliban Pakistan (TTP, also known as the Pakistani Taliban)'s recent peace overtures all the more significant.
TABLE: PAKISTAN POLITICAL OVERVIEW
Long-Term Political Outlook
Instability To Prevail, But Outright Collapse Unlikely
- Pakistan is at risk of experiencing years of instability and militant activity, but an outright collapse of the state is unlikely unless the core province of Punjab becomes ungovernable. Under such circumstances, we would not preclude a military coup. Meanwhile, due to its strategic importance, Pakistan's foreign allies will do everything they can to ensure its stability.
TABLE: SCENARIO MATRIX: EVOLUTION OF STATE
TABLE: SCENARIO MATRIX: CENTRIFUGAL VERSUS CENTRIPETAL FORCES
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Steady Upturn Still Fraught With Risk
- The economic data coming out of Pakistan of late paints a relatively encouraging picture, with the economy looking poised to record a faster rate of growth this fiscal year (FY2012/13, July-June), in line with our expectations.
TABLE: ECONOMIC ACTIVITY
Balance of Payments
Further Weakness PKR, Eye On Elections
- Our view for gradual weakness in the Pakistani rupee, which we last outlined in August (see 'PKR: Gradual Weakness Amidst US Economic Assistance' August 15), continues to play out well, with the unit currently trading at PKR97.43/US$.
TABLE: CURRENT ACCOUNT
SBP: Forceful Easing To Re-Ignite Inflation
Against our own expectations for a hold, the State Bank of Pakistan (SBP) chose to ease monetary policy further in its December meeting, bringing its benchmark reverse repo rate down by 50 basis points (bps) to a five-and-a-half-year low of 9.50%.
TABLE: MONETARY POLICY
Challenges Ahead To Sustain Fiscal Position
Full Table of Contents is available at:
About Business Monitor International
Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at www.fastmr.com/catalog/publishers.aspx?pubid=1010
About Fast Market Research
Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.
For more information about these or related research reports, please visit our website at www.fastmr.com
or call us at 1.800.844.8156.