The price of this business forecast report covers 4 quarterly reports on this country. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

Looking ahead at the next fiscal year (FY2012/13, July-June), we expect a recovery in economic growth as domestic demand improves on the back of easing domestic macroeconomic conditions (mainly the loosening of monetary policy). However, considering the ongoing risks of the government's precarious fiscal situation and the lingering energy crisis, the recovery presently sits on unstable ground. Therefore, our 3.0% real GDP growth projection for FY2012/13 remains below consensus. Despite the recent stubbornness of consumer price inflation, we continue to hold a dovish view on the State Bank of Pakistan (SBP)'s policy rates, given our outlook for continued disinflation on the back of falling money supply growth. We expect 100 basis points (bps) of additional cuts, taking the SBP's reverse repo rate to 11.00% in the coming months.

The country's current account balance will face further downside pressure in the months ahead as the recent rally in global oil prices cause a further deterioration of the country's terms of trade. We highlight the risk of remittance inflow volatility and remain concerned regarding the lack of foreign investment. The amount of circular debt in the country's power sector is surpassing crisis levels and the government's poor fiscal position suggests that near-term options to alleviate some of this pressure remain limited. Unless long-term structural reforms (such as energy price liberalisation) are prusued, the risk of a recurrence of the problem will remain.

Major Forecast Changes

We downgraded our real GDP growth forecast for FY2012/13 to 3.0%, from 4.0% previously, given the aforementioned risks. We have marginally downgraded our FY2011/12 (July-June) current account forecast to US$4.4bn (or 2.0% of GDP), from US$2.7bn 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.

Downside Risks To Growth: On a related note, should government borrowings from the banking system intensify, businesses' struggle with tight credit conditions could worsen. Furthermore, the central bank could decide against further easing, or, at worst, be forced to reverse its loose position.

Click for Report details:Pakistan Business Forecast Report Q3 2012