Growth Outlook: Industry Leads the Recovery
Pakistan’s economy is expected to maintain its positive momentum in the coming months, according to the Finance Ministry’s Monthly Economic Update and Outlook for December 2025. The report points to robust industrial growth, better governance and more cautious macroeconomic management as the main drivers of this improvement.
In the first quarter of fiscal year 2026, gross domestic product (GDP) grew by 3.71 percent. Industry was the standout performer, expanding by 9.38 percent. Agriculture grew by 2.89 percent and services by 2.35 percent, showing that recovery is broad-based, even if some sectors are moving faster than others.
High-frequency indicators also support this outlook. Large-scale manufacturing rose by 5.02 percent during July to October, and growth further accelerated to 8.3 percent year-on-year in October. Car production, a useful signal of demand and confidence, jumped 65 percent in the first five months of the fiscal year.
Inflation Eases and Interest Rates Begin to Come Down
The report also highlights some relief on the inflation front. Consumer prices rose by 6.1 percent in November, slightly lower than 6.2 percent in October. While this is still not low in absolute terms, the trend suggests that inflationary pressure is gradually easing compared to the very high levels seen in recent years.
The government expects inflation to remain moderate, in the 5.5 to 6.5 percent range in December, helped in part by base effects. This improved outlook has given the State Bank of Pakistan room to start lowering the policy rate. In December, the central bank cut the policy rate by 50 basis points to 10.5 percent, a move that should support credit growth and business investment if the trend continues.
Lower borrowing costs can help companies finance expansion plans and make it easier for households to manage loans. However, much will depend on whether inflation stays under control and whether future policy decisions remain aligned with overall stability goals.
External Sector: Remittances and Reserves Provide Support
On the external side, the picture is mixed but improving. Pakistan’s current account posted a surplus of $100 million in November, although the July to November period still showed a deficit of $812 million as imports outpaced exports. Goods imports rose 11.1 percent to $25.6 billion, while exports fell 3.2 percent to $12.8 billion.
Services exports, however, grew strongly by 16.7 percent, led by information technology exports. This shows the growing role of IT and other services in earning foreign exchange, even as traditional goods exports face global competition and demand challenges.
Workers’ remittances remained a key source of stability, increasing 9.3 percent to $16.1 billion in the first five months of the fiscal year. Foreign exchange reserves climbed to $21 billion as of 19 December, the highest level since March 2022, helped by inflows from the International Monetary Fund after a successful programme review.
Fiscal Consolidation and Agriculture’s Contribution
On the fiscal side, the report points to better discipline and stronger revenues. During July to October, the consolidated fiscal position showed a surplus of 1.0 percent of GDP, compared to 0.4 percent in the same period a year earlier. Federal tax revenues rose by 10.2 percent during July to November, driven mainly by higher direct taxes and federal excise duty collections.
Agriculture is also contributing to the positive outlook ahead of the Rabi season. Agricultural credit disbursements increased by 18.6 percent, and imports of farm machinery jumped by more than 27 percent. The government is targeting a wheat harvest of nearly 30 million tonnes, which, if achieved, would support food security and rural incomes.
These trends suggest that both urban industry and rural agriculture are playing their part in the recovery, reducing the risk that growth is limited to only a few sectors or regions.
Risks Ahead and What It Means for Businesses and Citizens
The Finance Division concludes that Pakistan’s economic outlook remains broadly positive, supported by industrial recovery, steady remittance inflows and ongoing fiscal consolidation. At the same time, it warns that risks remain from higher import demand, global uncertainty and possible external shocks.
For businesses, the current environment offers a window of opportunity to plan investments, upgrade technology and explore export markets, especially in value-added manufacturing and services like IT. Stable reserves and more predictable policies can help firms make longer-term decisions with greater confidence.
For ordinary citizens, sustained growth and lower inflation could, over time, translate into more jobs and stronger purchasing power. However, the benefits will depend on continued reforms, careful management of public finances and a focus on inclusive policies that ensure growth is shared across different income groups and regions.
