Will growth be negative?

Will GDP growth be negative in the current fiscal year? This is what all international institutions are predicting. The head of the government economic team condescends. He may be trying to boost the chances of debt relief. It was observed in in this column on February 1, 2013: “Pakistan suffered a decline in its GDP only once in her entire history (1951-52). Even at the height of the Bangladesh crisis in 1971, GDP growth was positive at 1.23%.” Is 2019-20 going to be the second time?

Although the first two cases of Covid-19 were detected in the last week of February, the lockdown affecting economic activity started in March. However, the economy was already strangulating under the severest ever austerity regime. Except for December, the large-scale manufacturing showed a negative growth every month during July-February period, with an overall average of -3%. As the lockdown began to cast dark shadows on the economy in March, the sector shrunk by a massive 23%, bringing the July-March growth to -5.4%. And the Covid-19 effect has only begun. That it will be worse for April can be judged from a 53% fall in exports. Such is the state of a sector with relatively reliable data during the year. It seems the year is likely to end up with a negative growth of around 7% for this major component of industrial sector. Other components include mining and quarrying, small scale manufacturing, slaughtering, electricity generation and distribution and gas distribution, and construction.

Other than small scale manufacturing with an assumed growth rate of around 8% and slaughtering likely to grow at 3%, all components are expected to grow negatively. As a whole, industrial growth will probably be around -6%.

In agriculture sector, the largest component of livestock is likely to post a positive growth of around 3.5%, despite the falling chicken and milk prices. Crops, the second largest component, recorded negative growth last year. It is likely to reverse this year due to a low base and a reasonably good wheat crop of 25 million tonnes, despite rains and locust attack. A 4% growth is a possibility. Cotton ginning and fishing are signalling negative growth. As always, agriculture should save the day by contributing an overall growth of 3-4%. Commodity production sector comprising industry and agriculture is likely to remain in the red at around -0.8%.

Services is the largest sector of the economy; it also hides a lot of informal activity and thus amenable to fudging. The most documented components are finance and insurance and general government services. The former has made supernormal profits under the overly high discount rate regime and the latter has never displayed negative growth. It got a fillip in the Rs1.2 trillion relief package. In transport, storage and communication, transport gets an obvious hit but storage due to the expected good season for wheat and communications being the most thriving business during the socially distanced environment, will have a positive growth of 2-3%. Wholesale and retail trade has direct correlation with the commodity production sector. A negative growth of 2.5% may be expected. Serious data issues in the components of housing services and other private services leave opportunities for creative accounting. In the past 20 years, these components have not witnessed negative growth even in the worst of times. A safe bet this time is growth rates of 6% and 7%, respectively.

Adding it all up in proportion to respective weights in the national accounts, the GDP growth rate for 2019-20 is likely to be positive and in the range of 0.2-0.6%.

Published in The Express Tribune, May 15^th, 2020.

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