Lockdown dampens business optimism

Optimism slumped in Q1 2020 compared to fourth quarter of 2019


Usman Hanif May 12, 2020
PHOTO: Reuters

KARACHI: The coronavirus pandemic has turned Pakistan’s economy sluggish and has also dented business optimism.

“From an overall perspective, the Covid-19 lockdown has dampened business optimism in Pakistan,” said Nauman Lakhani, CEO of Dun & Bradstreet Pakistan that issued the second edition of the Business Optimism Index for the first quarter of 2020.

Business optimism in Pakistan slumped in Q1 2020 as compared to the fourth quarter of 2019, even before the government executed the lockdown restrictions, he stated.

In the first quarter of 2020, the Covid-19 disrupted all businesses worldwide and the same happened in Pakistan. In the fourth quarter of 2019, the Business Optimism Index had a reading of 144.6 points, which dropped to 120.6 points in the first quarter of 2020.

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During the pre-lockdown period, the index stood at 141.1 points in the first quarter but post-lockdown the index fell to 85.6 points.

Based on 400 companies across various sectors and of various sizes, the overall Business Optimism Index in the first quarter of 2020 registered a decrease of 24 points and quarter-on-quarter 120.6 points - the value above 100 points indicates business optimism.

Economic uncertainty post-lockdown amid the Covid-19 pandemic was regarded as the key reason for the decline in business performance.

Business Optimism Index surveys are conducted in the last month of each quarter to gauge business sentiment for the current quarter as well as expectations about business performance in the following quarter. D&B conducted its survey from March 2 to March 31, 2020. About 30% of responses were recorded after the lockdown, when there was a significant dip in business optimism.

Large companies’ optimism index, small-medium enterprises (SME) optimism index and exporter optimism index dropped in Q1 2020, ranging from 16% to 25%. However, in aggregate, all three indices were above 100 points, indicating an overall optimism.

More than half of the respondents anticipated an increase in sales revenue and sales volume on expectation of higher demand, while 30% of respondents anticipated a decline in profit due to fixed cost payments amid falling revenue. Trading-sector respondents were more optimistic as compared to the manufacturing and services-sector respondents for the upcoming quarter.

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Concerns about inflation and exchange rate fluctuation were key factors, hindering business growth in Q1 2020. Additionally, 9% of respondents reported Covid-19-related uncertainty as an emerging challenge to businesses.

Prior to the lockdown, businesses were optimistic and hopeful that the pandemic will not affect Pakistan severely. Thus, there was a marginal drop of only 2.4% in the Business Optimism Index (pre-lockdown) in the first quarter of 2020 vis-a-vis the fourth quarter of 2019.

However, the Business Optimism Index (post-lockdown) for Q1 2020 dropped from a high of 141.1 points to below 100 points, indicating a significant shift in sentiment from optimism to pessimism. In the second quarter of 2020, 48% of respondents expected the business situation to improve and 27% expected their business situation to deteriorate. 

Published in The Express Tribune, May 12th, 2020.

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