Pakistan's economy shows momentum as coronavirus cases taper off

Pakistan is showing signs of business activity picking up at a faster clip, as worries about new coronavirus infections fade in an economy that contracted for the first time in seven decades.

Evidence of momentum returning can be seen from growing cement-to-fuel sales and demand for home appliances to cars. That’s happening even as Pakistan added fewer than 2,900 cases last week compared with almost 35,000 cases in a week in June, and 96 per cent of the total 300,000 infected have fully recovered.

“It has surprised everybody,” said Muzzammil Aslam, chief executive officer at Tangent Capital Advisors, who expects economic expansion at 4 per cent-5 per cent in the year started July, higher than the government’s 2.1 per cent target. “The growth is led by an aggregate demand push.”

Here’s a look at sectors where activity is ticking and why:

Construction Boom

Cement sales rose 38 per cent from a year ago to 4.8 million tonnes in July, and near a record level seen in October. A government programme to give amnesty to tax evaders, provided they fund construction projects, is expected to fuel activity —- and demand for cement — as work resumes after the lockdown.

“We expect dispatches to continue their rising run moving forward because of tax measures,” said Saad Khan, research head at IGI Securities. 

“Substantial decline in interest rates and mandatory targets given for banks to increase housing and construction financing to at least 5 per cent of private sector credit” will also help, he said.

Cement sales eased to 3.5 million tons in August, mainly because of torrential rains across the country.

Fuel sales

Gasoline sales in June rose to a record high as people return to work after lockdown measures eased in May, according to A A H Soomro, managing director at KASB Securities. Sales have stayed elevated in July and August.

Fuel for power generation has increased as well. Fuel oil sales rose in June to the highest in a year while LNG spot cargo purchase resumed in June after a six-month hiatus.

Car sales

Local car deliveries have recovered to about 10,000 units after four months as the end of lockdown ushered in new demand.

Kia Motors’ local unit is planning to add a second shift at its factory in Karachi from January.

Manufacturing

Manufacturing output improved for a second consecutive month in June. The overall recovery in large-scale manufacturing will likely be stronger in the October-to-December quarter with worldwide demand picking up, said Khaqan Najeeb, a former adviser to Pakistan’s finance ministry. Home appliances are also seeing “robust demand,” said Haroon Ahmad Khan, chief executive officer at Waves Singer Pakistan.