Farooq Awan

Pakistan’s economy is projected to grow by 3.7% in the fiscal year 2026 as industrial activity and the services sector continue to recover, while inflation and fiscal pressures remain contained.

After a period marked by floods, high inflation, and external uncertainty, economic momentum is gradually improving. Growth in fiscal year 2025 was recorded at 3.0%, and the outlook for fiscal year 2026 reflects a continuation of this recovery rather than a sharp or temporary rebound. Growth is expected to strengthen further to 4.4% in fiscal year 2027.

The Pakistan Investment Strategy 2026, prepared by Arif Habib Limited, projects the industrial sector to play a central role in supporting growth. Industrial output is projected to expand by 4.1% in fiscal year 2026, followed by further improvement in fiscal year 2027.

Large-scale manufacturing is expected to grow by 4.0% during fiscal year 2026. The recovery is supported by improved performance in key industries, including automobile manufacturing, cement production, and pharmaceutical manufacturing.

The report available with Wealth Pakistan notes that easing financial conditions and recovering domestic demand are supporting manufacturing activity.

Construction is expected to remain one of the strongest performing sectors. Growth in construction activity is projected at 7.0% in fiscal year 2026 and is expected to accelerate further to 10.0% in fiscal year 2027. This growth is supported by infrastructure development and reconstruction efforts in areas affected by flooding.

The services sector is also expected to contribute significantly to overall growth. Services are projected to grow by 4.2% in fiscal year 2026 and 4.7% in fiscal year 2027. Wholesale and retail trade is expected to expand by 5.8% in fiscal year 2026, supported by higher import volumes and improving domestic demand.

Information and communication technology services continue to expand steadily. Growth in this segment is projected at 5.5% in fiscal year 2026, with further acceleration expected in fiscal year 2027. Transportation, storage, accommodation, and food services are also expected to record moderate growth as economic activity picks up.

Agriculture is projected to grow at a slower pace compared to other sectors and is expected to grow at 2.3% in fiscal year 2026 due to lingering flood-related damage. Crop production is projected to recover by 1.4% after contracting in the previous year, while livestock growth is expected at 2.8%.

On the macroeconomic side, inflation is projected to average 6.9% in fiscal year 2026. The fiscal deficit is expected to remain around 4% of gross domestic product in FY26, while a positive primary balance indicates improving fiscal discipline.

According to the document, the growth outlook reflects a gradual shift toward a more durable and domestically driven economic model.

Credit: INP-WealthPk