Pakistan’s Inflation Outlook: February 2025 Forecast and Economic Trends

February 27th, 2025 | DailyForex.pk

Inflation Expected to Remain Low Amid Rising Exports and Remittances

Pakistan’s inflation rate is projected to stay within the 2-3% range in February 2025, with a slight increase expected in the following month, reaching 3-4% by March, according to the latest economic forecast by the Ministry of Finance.

In its Monthly Economic Update and Outlook, the ministry highlighted that declining inflation, coupled with a favorable monetary policy, is fostering positive business sentiment and contributing to the recovery of the Large-Scale Manufacturing (LSM) sector. This trend aligns with the government’s efforts to stabilize the economy and encourage sustainable growth.

Inflation Trends and Economic Stability

Inflation in Pakistan has been a major economic concern in recent years. In May 2023, the Consumer Price Index (CPI) inflation soared to a historic high of 38%, severely impacting businesses and households. However, the country has since experienced a steady decline in inflation, with January 2025 CPI inflation dropping to 2.4%, down from 4.1% in December 2024, according to the Pakistan Bureau of Statistics (PBS). This declining inflation trend in Pakistan reflects improving economic stability and the effectiveness of government policies to control inflation.

This downward inflationary trend has provided room for monetary policy adjustments, leading the Monetary Policy Committee (MPC) to cut the policy rate by 100 basis points to 12% in its latest decision. This marks a cumulative reduction of 1,000 basis points since June 2024, signaling government efforts to ease borrowing costs and support economic activity.

External Sector: Growth in Exports, Imports, and Remittances

The external sector is showing promising signs of stability, with exports, imports, and workers’ remittances maintaining an upward trajectory. The Finance Ministry anticipates further growth in remittance inflows, particularly due to seasonal trends associated with Ramadan, Eid-ul-Fitr, and Eid-ul-Adha, when expatriates traditionally send more funds back home.

Similarly, exports and imports are also expected to strengthen as economic activity expands. The increase in trade volumes is set to keep the Current Account Deficit (CAD) within manageable limits, reducing external vulnerabilities and reinforcing macroeconomic stability.

Agriculture and Large-Scale Manufacturing (LSM) Performance

The agricultural sector, a key driver of Pakistan’s economy, is facing potential challenges due to dry weather conditions, which could lead to water stress for Rabi crops, particularly wheat in rain-fed regions. The government and relevant authorities are closely monitoring the situation to mitigate risks and ensure a steady supply of essential crops.

On the industrial front, LSM performance is showing signs of recovery. The recent increase in machinery and raw material imports, coupled with a surge in cement dispatches, indicates that January 2025 could mark a significant improvement for the manufacturing sector. This resurgence in industrial activity is expected to contribute to economic momentum in the coming months.

Future Outlook: Key Projections and Economic Insights

According to JS Global, a leading brokerage firm, Pakistan’s inflation rate is expected to decline further to 2.3% in February 2025, slightly lower than January’s 2.4%. The firm’s forecast aligns with government estimates, reinforcing expectations of continued economic stability.

With inflation under control, positive trade balance trends, and a recovering industrial sector, Pakistan’s economic outlook remains optimistic. Policymakers are focusing on sustaining economic growth, managing inflationary risks, and ensuring fiscal discipline to keep the economy on a stable path.

Final Thoughts

As Pakistan enters the second quarter of 2025, economic indicators suggest a stable yet cautious recovery. While low inflation and improved trade figures offer optimism, agricultural risks and global market fluctuations remain key factors to watch. The government’s ability to navigate these challenges will determine the pace of economic growth in the months ahead.

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