Pakistan’s economy experienced a modest slowdown during the first half of the fiscal year 2024-25, but early indicators suggest a recovery is underway, driven by strengthening trends in manufacturing, services, and external trade. This assessment was shared by the State Bank of Pakistan (SBP) in its half-yearly report titled “The State of Pakistan’s Economy”, released on Monday.
According to the central bank, real GDP growth for the first six months (July–December) of FY25 stood at 1.5%, down from 2.1% in the same period of the previous fiscal year. Despite the deceleration, the SBP emphasized that the economy is gaining momentum in the second half (January–June), with encouraging signs across various high-frequency indicators.
“While growth slowed in the first half of FY25 compared to the same period last year, the latest data suggest that momentum in economic activity is gaining traction,” the SBP noted. The report maintained the central bank’s earlier real GDP growth projection in the range of 2.5–3.5% for the full fiscal year, although it flagged risks stemming from the agriculture sector’s underperformance and potential fiscal constraints.
The report highlighted a notable rise in the Purchasing Managers’ Index (PMI), which reached 53.0 in February 2025—the highest level since August 2022—signaling a recovery in manufacturing activity. Additionally, sales of automobiles, cement, and petroleum products have shown consistent growth in recent months. Exports of high value-added textiles have also demonstrated resilience, contributing to renewed industrial confidence.
The services sector, often correlated with broader economic health, is similarly expected to benefit from improved domestic demand and reduced inflationary pressures. However, the agriculture sector continues to present a downside risk. Preliminary estimates point to a lower-than-expected wheat harvest, which may drag on overall GDP growth if not offset by gains in other sectors.
On the fiscal front, the SBP report indicated some improvement in government accounts during the first half of FY25. This was largely attributed to sizable profit transfers from the central bank and controlled subsidy expenditures. Nevertheless, the fiscal deficit is still projected to range between 5.5–6.5% of GDP for the year, with downside risks from revenue shortfalls persisting.
Inflation, a key concern for households and policymakers alike, has shown a marked decline. The SBP revised its inflation forecast for FY25 sharply downward to a range of 5.5–7.5%, compared to earlier estimates of 11.5–13.5%. This easing trend is supported by a combination of subdued domestic and global commodity prices, improved food supply management, and a tightening of monetary policy over the past year.
On the external side, the current account balance is projected to remain stable, estimated between -0.5% and 0.5% of GDP. Positive factors include a recovery in workers’ remittances, steady export growth, and lower energy import costs. However, the SBP warned that rising industrial demand may drive up import volumes, making the economy vulnerable to renewed volatility in global commodity markets.
The report also underscored risks stemming from the international environment. Heightened protectionism, geopolitical tensions, and the possibility of a global inflation resurgence—fueled by tariffs and supply chain disruptions—pose external headwinds for Pakistan’s recovery trajectory.
In conclusion, while early FY25 economic performance was muted, the SBP remains cautiously optimistic about the remainder of the year. The recovery in non-agricultural sectors, particularly industry and services, is expected to help Pakistan regain economic footing. However, the central bank emphasized that sustaining this momentum will require prudent policy execution and resilience in the face of evolving global challenges.