Mixed trends in the economy

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Published on August 29 2011 ,Economic and Business Review Page 6

Mixed trends in the economy

By Mohiuddin Aazim

MONTHLY consumer inflation at 1.8 per cent in July was higher than 1.2 per cent in June, primarily due to increase in food prices that make up 40 per cent of the Consumer Price Index. Recent floods in parts of Sindh and Punjab and growth in exports of food items have further pushed up prices of eatables. Overall inflation in July this year was also higher than in July last year (see table). Sometime ago, the government decided to change the base year from 200001 to 2007-08 for calculating CPI and wholesale price index (WPI)). The Federal Bureau of Statistics was supposed to start calculating inflation data from July 2011 using the new base year. But This has not happened. Latest data released by the FBS show that large-scale manufacturing grew 1.14 per cent in FY11 slightly higher than the earlier estimate of 0.98 per cent. Officials say this would boost overall GDP growth by 0.1 per cent for the current fiscal yearfrom 2.4 to 2.5 per cent. However, LSM growth in the month of June showed an annualised decline of 2.95 per cent primarily due to summerrelated acute shortages of electricity. The industries whose outputs grew in FY11 included diesel oil, lubricating oil and solvent Naptha, sugar, cotton and synthetic yarn, cotton cloth, fertiliser, paper and board, jeeps, cars, light commercial vehicles and motorcycles, cooking oil, wheat and grain milling, leather manufacturing, footwear, chemicals/pharmaceuticals, chaff cutters, sugarcane machines, power looms, electric bulbs and TV sets etc. Export earnings in July with 28 per cent annualised growth remained above $2.2 billion with food exports accounting for 18 per cent of it. Exports of rice, however, showed some decline, both in terms of quantity and value. But Rice Exporters Association of Pakistan says the decline was temporary driven by easing in prices in international market and a slowdown in shipments in July owing to poor law and order situation in Karachi. According to Association Chairman, Mr Irfan Ahmed Sheikh export target of rice has been set at 4.6 million tonnes for this fiscal year which should fetch $2.5 billion, up from $2.2 billion last year. Exports of 0.1 million tonnes of wheat in July 2011 against no exports in July 2010 and increase in exports of fruits and vegetables not only compensated for a fall in rice exports but also contributed to an overall 33 per cent growth in food exports earnings. Textiles exports fetched over a billion dollars in the first month of this fiscal year showing an annual growth of 14 per cent despite depressed cotton prices. Cotton ginners have called off their 18day strike after the governments decision to withdraw the 3.5 per cent withholding tax levied on purchase of raw cotton by ginneries. Textile millers say supply of cotton would return to normal levels though prices would be higher due to damages to the crop during the floods. An official of the Pakistan Cotton Ginners Association said despite the recent floods cotton output during this season was expected to reach 14.5 million bales against initial estimates of 15 million bales. Industrialists and businessmen are, however, deeply concerned over violence in Karachi and extortion of money from the community. They say the unrest in the city is affecting industrial production and may hurt growth in exports. The executive committee of the Federation of Pakistan Chambers of Commerce and Industry will meet on September 10 to discuss the issue and press the government to restore peace in the metropolis. One big accomplishment in exports in July this year was the tripling of jewellery exports to $81 million from just $26 million in July last year. Jewellers attribute it to a skyrocketing of gold prices. Besides, exporters have also managed to penetrate deeper into such markets as China, Saudi Arabia and the UAE, according to Chairman of Pakistan Jewellers Association, Haji Haroon Chand. Home remittances with annualised increase of 38 per cent also remained above a billion dollars in July this year. We saw strong inflows in August (during the month of Ramazan) and the amount received this month should reach $1.2 billion if the pace of inflows continues till the last days, said treasurer of a large commercial bank. Unlike exports and remittances, a sharp decline was seen in foreign investment in the first month of this fiscal year compared to the same period last year. But officials point out that foreign direct investment should start picking up in coming monthsthanks
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Mixed trends in the economy

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to a string of agreements reached in the last fiscal year with China, South Korea, Japan, Saudi Arabia, Malaysia etc in the fields of power generation, public transport and auto manufacturing, infrastructure building, food processing etc. Stockbrokers maintain it is too early to say foreign investment in Pakistani bourses had started declining in July much before the August 5 downgrading of the US long-term debt credit rating and the resultant turmoil in global financial market. But the impact of the crisis on Asian markets has started subsiding somewhat, says a former chairman of Karachi Stock Exchange. We hope foreigners would make a comeback pretty soonfollowed by domestic investors who are scary of political uncertainty.

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