The State Bank of Pakistan (SBP) has revised its GDP growth projection for FY26 upward to a range of 3.75-4.75%, reflecting stronger-than-expected economic momentum.
Governor Jameel Ahmed highlighted robust performances in industry and agriculture sectors during a press conference following the Monetary Policy Committee meeting.
Economic Activity Surge
Real GDP expanded by 3.7% year-on-year in Q1 FY26, up from 1.6% in the same period last year. This growth was driven by a 7.7% increase in large-scale manufacturing (LSM), reversing a 1.5% contraction previously.
High-frequency indicators like auto sales, domestic cement dispatches, and POL sales (excluding furnace oil) showed notable gains. Fertilizer off-take and imports of machinery and intermediate goods also rose significantly. Agriculture saw strong outputs in major crops, with cotton production up 28.4% and rice by 18.6%.
Services sector growth slowed to 3.2% from 4.8%, but overall activity remains positive. Recent data suggests this trend persisted into Q2 FY26. The revision stems from better-than-anticipated domestic demand and supply chain improvements.
Inflation and Policy Stance
CPI inflation eased to 5.6% in December 2025, down from 6.1% in November. Average inflation for H1 FY26 stood at 5.2%, compared to 7.2% last year. Core inflation moderated to 7.7% from 8.7%. The MPC decided to maintain the policy rate at 10.5%, citing balanced risks.
Governor Ahmed noted favourable base effects and supply-side improvements. However, potential upside risks from global commodity prices and fiscal slippages remain. This cautious approach aims to anchor inflation expectations. Overall, the outlook supports sustainable growth without overheating.