Strongest First-Quarter Growth in Four Years
Pakistan’s economy posted a growth rate of 3.7 percent in the first quarter of fiscal year 2025–26, according to estimates approved by the National Accounts Committee. This is the highest first-quarter GDP growth in four years and is above the eight-year average first-quarter growth of 3.3 percent.
The committee also revised last year’s GDP growth slightly higher, from an earlier estimate of 3.04 percent to 3.09 percent. Analysts say the latest numbers point to a gradual recovery, supported mainly by a sharp turnaround in industry after a period of weak activity and macroeconomic stress.
While growth remains below the levels needed to absorb new entrants into the labour force at scale, the latest figures do suggest that the worst phase of slowdown may be easing, especially in key production sectors.
Industry Drives Recovery with 9.4% Expansion
Industry emerged as the main driver of growth in the first quarter, recording a strong 9.4 percent expansion compared to just 0.12 percent in the same period last year. This makes it the best first-quarter industrial performance in eight years and marks a sharp contrast with the near-stagnation seen previously.
According to Topline Research, a 25.5 percent jump in electricity, gas and water supply played a major role in lifting industrial output. Higher subsidies, improved power availability and favourable base effects helped reduce costs and stabilise energy supply to factories and businesses.
The construction sector also posted impressive gains, growing by 21 percent on the back of higher cement production. Large-scale manufacturing, which includes key industries such as textiles, food, cement and autos, grew by 3.9 percent. Together, these sectors have turned industry into the backbone of early FY26 growth.
Mixed Picture in Agriculture and Services
Agriculture recorded growth of 2.89 percent during the quarter, but the headline number hides a mixed performance. Crop output contracted by 3.65 percent, mainly due to lower cotton production, which remains vulnerable to weather, pest attacks and input cost pressures.
This decline was partly offset by stronger growth in other segments. Livestock, which is a major source of rural income, grew by 6.3 percent, while forestry expanded by 2.1 percent. These gains helped keep overall agricultural growth in positive territory despite the setback in crops.
The services sector, which accounts for a large share of the economy, grew by 2.35 percent. Within services, finance and insurance expanded by 10.4 percent, reflecting improved stability in the financial system and stronger activity in banking and capital markets. Public administration and social security also recorded robust growth of 8.08 percent.
However, information and communication services saw a sharp contraction of 29 percent, largely due to lower mobile phone production. This drag shows that not all parts of the services economy are benefitting evenly from the recovery.
Growth Outlook Raised to 3.5–4% for FY26
On the back of stronger-than-expected first-quarter performance, analysts at Topline Research have revised Pakistan’s full-year GDP growth forecast for FY26 upward to a range of 3.5 to 4.0 percent. Their earlier projection had been between 3.0 and 3.5 percent.
The upgraded outlook is mainly driven by better prospects for industry and construction. Improved cement offtake, continued base effects in energy and a more stable policy environment could support further gains in the coming quarters, provided that input costs and power supply remain manageable.
Even at 3.5 to 4.0 percent, growth would still be modest for a country with Pakistan’s population size and development needs. But after a period of low or near-zero growth, a sustained recovery in these ranges can help stabilise the macro-economy and create space for gradual improvements in jobs and investment.
What the Numbers Mean for Businesses and Households
For businesses, especially in manufacturing and construction, the latest data offers a cautiously positive signal. Stronger demand for cement, better large-scale manufacturing numbers and improved energy supply suggest that firms may see more stable orders and a better environment for planning new investments.
For households, the impact of higher GDP growth will depend on whether it translates into more jobs and stable prices. If industrial and construction activity continue to pick up, they can support employment in factories, supply chains and related services. At the same time, maintaining control over inflation and energy costs will be essential to ensure that any gains in growth are not eroded by rising living expenses.
Overall, the first-quarter numbers are a welcome sign that Pakistan’s economy is moving back towards a growth path, but sustaining and broadening this recovery across agriculture, services and small businesses will remain the key challenge for policymakers in the rest of FY26.
