Faltering consumer demand.

Byline: Afshan Subohi

Political, economic and psychological factors have collectively put pressure on the Pakistani consumer, reputed to be the most resilient and liberal spender in the region.

The obvious outcome is falling consumption.

The marked weakening of aggregate demand a key economic stimulant that survived the testing times of political turbulence and violent militancy is disquieting for businesses and economic observers.

The State Bank of Pakistan (SBP), which monitors consumer sentiments closely, was not perturbed. When reached for comment, sources in the central bank confirmed that consumer demand has indeed crashed. But they saw it as a sign of success of policies aimed at cooling down the overheated economy.

In a statement explaining the consumption story, SBP Chief Economist Dr Saeed Ahmed told Dawn: 'Contractionary monetary policy is one of the factors and the impact of a cumulative 500-basis-point increase in the policy rate over the current fiscal has started to unfold.

Consumer demand has crashed, but central bankers see it as a sign of successful policies aimed at cooling down the overheated economy

'Other major factors behind slower overall growth are lacklustre performance of agriculture and a reduction in development spending. Also, the fall in the sales of durables like automobiles is partly explained by the ban on non-filers.

'In addition, the exchange rate adjustment may have forced expenditure switching from imported to domestic goods. However, since the domestic production would take time to respond, domestic demand has been depressed.

'In sum, stabilisation measures, especially the exchange rate depreciation and higher inflation, have reduced the purchasing power in the economy during the adjustment phase.'

The SBP in collaboration with the Institute of Business Administration (IBA) has been conducting the Consumer Confidence Survey every second month since 2012.

In the last survey released in March, an increase of 2.5 per cent in the Consumer Confidence Index (CCI) was reported despite a higher inflation expectation. The May edition of the survey will likely be released today after the monetary policy announcement.

The graph depicting the consumer perception of the future and current economic conditions over the past seven years highlights the optimistic nature of the Pakistani consumer.

That the CCI has remained higher than the Current Economic Condition (CEC) Index and the Expected Economic Condition (EEC)...