Economic outlook brightens as Business Confidence Index reaches 54.6 in May M Haris

In May 2024, the Business Confidence Index (BCI) surged to 54.6, signaling a positive shift in economic sentiment, as revealed by the 48th Business Confidence Survey conducted by the State Bank of Pakistan (SBP).

The uplift in business confidence is largely fueled by improvements in both the Industry and Services sectors. According to the survey, the Industry sector’s confidence index rose by 2.2 points to 52.1, while the Services sector increased by 20.7 points to 55.4, underscoring broad-based economic optimism.

In order to determine the Business Confidence index holistically, the graphs of Current Business Confidence Index (CBCI) and the Expected Business Confidence Index (EBCI) must be analyzed.

The CBCI, reflecting the past six months’ economic conditions, grew by 1.1 points to 51.2. This improvement stemmed from a 2.8-point rise in the Industry sector to 48.3, coupled with a 0.5-point uptick in the Services sector to 52.1. Increased positive and neutral responses, along with fewer negative views, contributed to this upward trend.

Whereas, the expectations for the next six months, captured in the EBCI, climbed by 1.1 points to 58. The Industry sector’s EBCI advanced by 1.6 points to 55.9, while the Services sector’s EBCI edged up by 0.9 points to 58.7. The data indicates a growing optimism among businesses about future economic conditions.

It is pertinent to note that the PMI dipped slightly by 0.6 points to 49.3, marking a departure from positive territory last seen in June 2022. This decline was driven by reductions in total orders booked (down 1.5 points), business activities (down 1.0 points), supplier delivery times (down 0.6 points), and employment (down 0.3 points). Nonetheless, raw material purchases saw a marginal increase of 0.1 points.

Inflation expectations saw a notable decrease, dropping by 10.1 points to 56.0. Both the Industry and Services sectors contributed to this decline, with the Industry sector falling by 10.2 points and the Services sector by 9.8 points.

The employment landscape presented a mixed picture. The Current Employment Index rose by 1.1 points to 51.2, primarily driven by a 1.6-point increase in the Services sector to 52.4, despite a slight 0.3-point decline in the Industry sector. Conversely, the Expected Employment Index decreased by 0.8 points to 55.1, with a 1.0-point drop in the Services sector and a modest 0.1-point rise in the Industry sector.

Meanwhile, the Average Current Capacity Utilization (ACCU) for the Manufacturing sector increased significantly by 4.1%, reaching 67.7% in May 2024, highlighting enhanced operational efficiency and potential for increased production in the near term.

This surge in the Business Confidence Index reflects a growing optimism in Pakistan’s economic landscape, driven by sectoral gains and positive future expectations, despite some areas of concern.