Pakistan’s Economic Recovery to Gain Momentum in Early FY2026 Amid Industrial Growth and Investor Optimism
Pakistan’s Economy Set to Accelerate in Early FY2026 Pakistan’s economy is forecast to continue its recovery phase in the early months of fiscal year 2026, underpinned by a combination of macroeconomic improvements, heightened investor interest, and a stable external environment. According to the Finance Division’s Monthly Economic Update & Outlook, the outlook for June and July 2025 is broadly positive, especially across manufacturing, trade, and foreign exchange inflows.
With industries scaling up production and private sector borrowing increasing, the economic engine is gradually gathering pace. The report suggests that this trend is likely to carry forward, fueling confidence among both domestic and foreign investors.
Positive Momentum in Economic Indicators
Revival Supported by Stronger Macroeconomic Fundamentals
Pakistan has seen a gradual strengthening of key economic metrics, including inflation moderation, current account improvement, and fiscal discipline. These factors are laying the foundation for sustainable economic growth in FY2026.
This revival is evident in the improving performance of various sectors, signaling a broader recovery that is not solely dependent on government stimulus or external financing.
Rising Investor Confidence as a Key Driver
With greater policy clarity and macroeconomic stabilization, investor sentiment has improved significantly. Domestic capital markets are showing more activity, and foreign direct investment is beginning to show signs of recovery, particularly in sectors like energy, telecom, and manufacturing.
The combination of regulatory reforms, fiscal consolidation, and monetary easing is helping create a more conducive environment for long-term investment.
Industrial Sector Expected to Power Economic Recovery
LSM Sector Maintains Upward Trajectory
The Large-Scale Manufacturing (LSM) segment, which contributes heavily to GDP, is expected to maintain its growth momentum into June 2025. The uptick is largely driven by:
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Increased availability of working capital
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Enhanced demand in local and international markets
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Revival of industrial supply chains
The Finance Division noted that manufacturing output has been on a steady path to recovery, buoyed by improved energy supply and streamlined logistics.
Boost in Private Sector Credit and Output
A notable increase in private sector credit offtake reflects business expansion and capital expenditure by firms aiming to capitalize on improving demand. Financial institutions are also reporting a healthier appetite for industrial loans, signaling confidence in economic continuity.
This access to credit is translating into expanded operations, higher employment, and rising industrial productivity—key pillars for sustainable GDP growth.
Trade Activity to Rebound with Economic Revival
Higher Imports of Raw and Intermediate Goods
The report anticipates that import activity will pick up, particularly in raw materials and intermediate goods, which are essential for sustaining manufacturing momentum. This trend suggests that companies are gearing up for production scale-up, possibly in anticipation of strong demand in the coming quarters.
Rising imports of inputs are often early indicators of growth, reflecting optimism and forward-planning within the business community.
Growth in Exports of Value-Added Products
At the same time, exports of value-added goods are expected to gain ground as factories increase output and global orders rebound. Sectors such as textiles, pharmaceuticals, and IT services are likely to lead this growth, benefitting from improved competitiveness and exchange rate stability.
The transition from exporting low-value raw goods to high-value manufactured products is crucial for building a more resilient and diversified export base.
External Sector Stability in Sight
Steady Exchange Rate and Stable Commodities Market
The Finance Division’s outlook points to a stable exchange rate and calmer global commodity prices, both of which support Pakistan’s import-export dynamics. With minimal exchange rate volatility, businesses are better positioned to plan operations and hedge risks effectively.
This exchange rate stability also helps in reducing inflationary pressures, especially for imported energy and food items, improving overall consumer sentiment.
Positive Outlook for Remittances and Trade Balance
Remittances, a lifeline for Pakistan’s external account, are projected to remain strong as labor markets in Gulf and Western countries recover post-COVID. Coupled with rising exports and stable imports, this is expected to enhance the trade balance and add to foreign exchange reserves, fortifying the economy’s external buffers.
July 2025 Forecast Indicates Sustained Recovery
Expected Growth in Exports and Imports
For July 2025, the Finance Division expects both exports and imports to increase in line with growing industrial and consumer demand. This synchronized rise indicates a balanced economic expansion, one that supports domestic consumption while engaging with international markets.
With trade flows normalizing, Pakistan’s global trade footprint is set to widen, especially in high-margin, technology-driven sectors.
Improved Demand Environment to Fuel Economic Gains
Overall, the outlook is optimistic. Domestic demand is gaining momentum, foreign demand is stabilizing, and macroeconomic policies are showing results. These aligned forces could push GDP growth higher in the first half of FY2026, creating a solid platform for continued economic recovery.
