The Purchasing Managers Index (PMI) surveys for July and August signalled robust expansion across the Services, Construction, and Manufacturing sectors, reinforcing the upward trend seen in previous months, says First Capital Research (FCR).
The Services sector experienced the most significant expansion recording a PMI of 71.1 in July 2024, the highest value so far this year.
In August 2024, the Services sector continued to expand, with a PMI of 65.2, reflecting strong growth, though slightly moderated compared to the record-high July figure.
This growth was fuelled by improvements in entertainment and recreation activities, wholesale and retail trade, transportation services, and financial services.
The Manufacturing sector continued to expand in August with a PMI of 55.5, reflecting healthy growth, at a slightly slower pace than July’s 59.5.
All sub-indices, except for Employment, remained above the neutral threshold signaling resilience in the sector.
The Construction sector maintained its positive momentum, expanding to an index of 62.9 in July, supported by an increase in construction projects funded by multilateral agencies. Improvements in PMI are indicative of supply side expansion and a 4.7%YoY growth in GDP in 2Q 2024.
Meanwhile private credit surged by Rs. 60.2 billion in July 2024, and liquidity improved as well.
Total Private Sector Credit increased by Rs. 60.2 bn to Rs. 7.6 tn in July, and by Rs. 74.5 billion in June indicating constantly improving credit growth, liquidity, and economic activity, aligning with FCR targets. Amid this growth, the Average Weighted Lending Rate (AWLR) fell to 12.25% in July 2024, and the Average Weighted Prime Rate (AWPR) rose slightly to 9.13% in Aug ‘24 from 8.81% in July 2024.
These indicators suggest that while there is room for a rebound, current rates are sufficient for growth in economic activity given the rise in private sector credit. The resultant outstanding liquidity reflected in private sector credit growth has consistently remained between the Rs. 30.0 bn – Rs. 80.0 bn target in June -August 2024.
This ample liquidity, driven by the Central Bank’s relaxed policy rates, has been sufficient to stimulate business activity and maintain positive liquidity levels in the banking system.
A further relaxation of monetary policy could cause excessive credit growth, leading to an increase in net imports, resulting in overheating of the economy.
Therefore, indicators suggest that current economic conditions are conducive for stable growth to maintain liquidity and credit growth without a further relaxation of monetary policy.
