GDP GROWTH RATE

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Aug
15 - 21, 2011

GDP is one of the primary indicators used to gauge the health of any economy. It represents the total value of all goods and services produced over a specific time period. It is the market value of all the output produced in a nation in one year.

Pakistanís economy suffered a significant supply shock in the aftermath of devastating floods of July 2010 in addition to massive disruptions in provision of energy.

A spillover of the European debt crisis was felt on debt and fiscal sustainability of Pakistan. The country's real GDP growth in the outgoing year was estimated at 2.4 per cent compared to 3.8 per cent in the previous fiscal year. This compares with 4.4 per cent projected growth for the global GDP, 6.5 per cent growth in developing countries and 8.7 per cent in South Asia. The commodity producing sector recorded a rise of only 0.5 per cent, the lowest since 1992-93.

MANUFACTURING SECTOR

The manufacturing sector has been witnessing gradual buildup in its share in the GDP during the last three years from 18.2 per cent to 18.7 per cent. However, it is lower than its peak level of 19.2 per cent in 2007-08.

Output in the manufacturing sector has witnessed expansion of three per cent in 2010-11 as compared to expansion of 5.5 per cent last year on the back of strong performance from small and medium manufacturing sector while large-scale manufacturing remained affected by structural problems and energy crisis. Small and medium manufacturing sector maintained its healthy growth of last year at 7.5 per cent.

Large scale manufacturing which accounts for 12.1 per cent stake in GDP faced the significant loss in growth momentum for last few years, and depicted a marginal growth of 0.98 per cent during July-February 2010-11 compared to 4.9 per cent in the same period last year. Slower growth is because of the fact that LSM remained victim of power outages and lower domestic demand.

SERVICES SECTOR

The services sector has been an important contributor to Pakistanís economic growth over the past many years. In 2000s, it had grown at an average of 5.5 per cent annually, which was lower than its average growth of 6.6 per cent in the 1980s but higher than its growth in the 1990s.

The continuing buoyant trend, even while growth in the industrial sectors has been slowing, implies that the services sector has been relatively insulated from the challenges faced by the rest of the economy and has been better able to cope up with them.

Pakistan has also seen a major transformation in the economic structure and the share of the services sector has risen to 53.3 per cent in 2010-11, which is highest share in last two decades. The services sector grew 4.1 per cent against the target of 4.7 per cent and actual outcome of 2.9 per cent. The services sector has made a contribution of 90 per cent to the GDP growth.

SHARE OF AGRICULTURE

The share of agriculture in GDP gradually shrank to 20.9 per cent in 2010-11 from 25.9 per cent of GDP in 1999-2000. Overwhelming majority of the population depends directly or indirectly on income generated by the agriculture sector. The crop sector has the potential to influence the overall performance of the agriculture sector and it recorded negative real growth of four per cent but still higher output prices are manifested in higher production and import of durables.

COMMODITY PRODUCING SECTOR

The commodity producing sector (CPS) has performed below par during the last two decades, mainly owing to persistent slowdown in the growth of agriculture sector. It is comprised of production sectors like agriculture and industry. Its share in the GDP has declined from 49.3 per cent in 1999-2000 to 46.7 per cent, which implies deterioration in the job creating ability of the economy.

The erosion of share of agriculture by five percentage points is mainly responsible for this decline. Much alarming thing than share of GDP is loss of growth momentum in the agriculture sector as its growth decelerated from 5.4 per cent in 1980s to 4.4 per cent in the 1990s and then to just 2.7 per cent in the last decade of 2000s.

Barring small and medium manufacturing, and livestock subsectors, the growth performance of its main components remained lackluster at best. In the industrial sector, the massive negative contribution from electricity and gas distribution sector to the GDP growth is neutralized by positive contributions from manufacturing sector but its overall contribution remained fractionally negative. Overall contribution to the GDP growth stood at 10 per cent.

CONCLUSION

The world economic outlook estimates that global GDP, after expanding by five per cent in 2010, will slow to 4.4 per cent in 2011, before it reaches 4.5 per cent in 2012. The recovery is not able to mitigate concerns regarding high unemployment in advanced economies, while new macroeconomic challenges are building up in many emerging economies.

While GDP is widely used by the economists to gauge the health of an economy, its variations are relatively quickly identified. However, its value as an indicator for the standard of living is considered to be limited. As far as Pakistan is concerned, the government will have to increase the country's domestic production for maintaining the GDP growth for upcoming years.

COMPARATIVE REAL GDP GROWTH RATES IN SOUTH ASIA (%)

COUNTRY 2007-08 2008-09 2009-10 2010-11 2011-12
India 6.2 6.8 10.4 8.2 7.8
Bangladesh 6.0 5.8 6.0 6.3 6.6
Sri Lanka 6.0 3.8 9.1 6.9 6.5
Pakistan 3.7 1.7 3.8 2.4 4.2