Pakistan economy faced several reversals during the year 2014, having internal as well as external factors employed in the changes. The economy saw a high growth of the value of dollar against rupee and then appreciation of rupee against dollar. A declining trend of inflation was also observed and oil prices touching historical highs and now big slumps in its prices.
The fiscal year that ended on June 30 observed a modest recovery in GDP. In real terms, the growth in GDP was recorded at 4.1 percent. The meek recovery could be attributed to the manufacturing activities, which posted 5.5 percent growth. Therefore, it could be said that industrial sector played a big role in the recovery of economic growth in Pakistan.
The sectoral shift
The agriculture growth was recorded at 2.1 percent and the growth of services sector at 4.3 percent. But the share of services has increased to more than half of the total economy and therefore its end impact on aggregate economic could be gauged by the fact.
The increase in volume of the services sector in Pakistan and diminishing role of agriculture could not be considered as bad for economy since many high performing economies of the world does show this attribute. However, it doesn’t mean that Pakistan economy could be considered among them. The shares of services sector in America and in many European countries are more than 55 percent.
The lack of exports against increasing imports
The biggest hurdle Pakistan economy faces is trade deficit. Imports are increasing while exports are moving downhill. The value of exports stood at around $25 billion while imports stood at $45 billion at the end of the fiscal year.
The role of workers’ remittances
As Pakistanis are unable to produce effectively and export and earn more foreign exchange, workers’ remittances has helped economy and was recorded at $16 billion. As a matter of fact, the trade deficit, which stood at $20 billion, the workers’ remittances helped the economy to reduce the current account deficit and maintain its foreign exchange reserves at $14 billion.
Notwithstanding, the challenges Pakistan faced during the year 2014, KSE-100 Index, which could be considered to be representing Pakistan’s overall businesses, posted a return of 27% (USD-based 31%).
Automobile and Parts
In terms of market capitalization among top 10 sectors, automobile sector recorded a stellar performance with an increase of 133%. The depreciation of Yen against US-Dollar and rupee; introduction of new models and initiation of Punjab Taxi scheme were main reasons for the impressive performance.
The pharma sector’s market cap increased by 91% due to hike in drug pricing and stability of rupee against US dollar.
Cements & Tobacco
Tobacco and cement sectors also performed remarkably with an increase in market caps by 86% and 61% respectively. The cement industry costs declined following lower coal and oil prices.
Power sector also managed a decent performance posting a growth of 36%. The declining interest rates have bolstered the confidence of investors.
Commercial Banks stayed at par with the benchmark posting a growth of 26%. They benefitted from the economic recovery. The sector’s outlook has also bettered due to increased exposure in high yielding PIBs.
Textile and Food sectors
Textile sector remained underperformer when compared with the overall index posting a return of 12% as compared to 27% of KSE-100 Index. However, the underperformance could be attributed to appreciation of rupee against dollar thus affecting exports. The demand for cotton yarn has also fallen. Food sector also remained below par benchmark KSE-100 Index posting 17% growth.
Oil and Gas Sector
Feeling the pinch of declining oil prices in international market, Oil and Gas sector saw a negative growth of 17 %. The negative growth has endured the impact of free falling oil prices by 48% (Arab Light) in FY15 first two quarters.