Pakistan’s economy showed vigorous improvement in the 1QFY26, achieving 3.71% YoY GDP growth. This represents a notable uptick compared to the 1.56% growth observed in the corresponding period of the prior fiscal year. The revival was largely fueled by a robust 9.38% rise in the industrial sector, moderate 2.89% agricultural growth, and stable 2.35% services expansion.

The annual GDP growth rate for FY25 has been adjusted upward to 3.09%, a slight increase from the 3.04% approved in the 114th National Accounts Committee meeting. This revision underscores a marginally stronger economic performance than initially assessed.
Agriculture Sector

• The agriculture sector grew by 2.89% in 1QFY26, an improvement from 1.01% in the same period last year. This growth was primarily driven by the livestock subsector, which expanded by 6.29%, benefiting from lower input costs, notably a 14.4% decline in green fodder prices. In contrast, crop production faced significant challenges. Important crops declined by -0.75%, largely due to a -1.2% drop in cotton production. Other crops contracted sharply by -6.37%, a stark reversal from the 19.33% growth observed in 1QFY25, attributed to reduced green fodder output and a 13% rise in fertilizer prices. Forestry and fishing maintained stable growth at 2.13% and 0.91%, respectively.

Industry Sector

• The industrial sector recorded a remarkable 9.38% growth, a substantial improvement from the 0.12% growth in 1QFY25. Manufacturing was a key contributor, expanding by 5.78%, with LSM growing by 4.10% and Small-Scale Manufacturing (SSM) by 10.22%. Notable growth was observed in food (6.30%), automobiles (84.60%), transport equipment (40.73%), and rubber products (14.10%), although machinery and equipment declined by -14.08%. The electricity, gas, and water supply subsector surged by 25.46%, supported by increased output, a rise in quarterly subsidies from PKR20bn to PKR118bn, and a decline in the electricity CPI from 288 to 237.1. Construction also performed strongly, growing by 21.03%, driven by a 15.32% increase in cement production. However, mining and quarrying contracted by -4.13%, with declines in gas (-7.1%), crude oil (-4.9%), and limestone (-6.8%) production.

Services Sector

• The services sector grew by 2.35% in 1QFY26, slightly up from 2.24% in the same quarter last year. Performance within the industry was mixed. Finance and insurance activities rebounded strongly with 10.36% growth, compared to a -3.51% contraction in 1QFY25. Public administration and social security expanded by 8.08%, up from 3.73%, reflecting increased government expenditure. Education and health services grew by 5.24% and 6.27%, respectively, while wholesale and retail trade increased by 3.08%, supported by growth in agriculture and manufacturing. However, the information and communication subsector experienced a sharp decline of -28.70%, attributed to reduced output from mobile companies.

Courtesy- AL Habib Capital Markets (Pvt) Limited