Pakistan’s economy is set to experience steady growth in the current year, with real GDP expected to rise by 3.4%, underpinned by a robust recovery in industrial activity and sustained momentum in the services sector, China Economic Net (CEN) reported on Friday quoting according KTrade Securities’ latest research. “The outlook builds on the stabilization achieved in 2025. Inflation, which had been a persistent concern, moderated significantly to 5.6% on a year-on-year basis by December 2025.

Real GDP growth also improved to 3.09% in FY2025, and monetary conditions saw a substantial easing, with the policy rate being slashed from 21% to 10.5%,” Muhammad Faran Khan, Associate Director, KTrade Securities said. Commenting on the chronic challenge of reliance on external financing, Faran noted a weaker US dollar may offer some relief by reducing the cost of debt servicing.

“A softer dollar cuts debt servicing costs in terms of PKR and makes Pakistan’s Eurobonds cheaper to service, which could pave the way for an early buyback. On the external front, the weaker dollar helps reduce the cost of imports, especially energy imports like oil, benefiting the current account balance and mitigating inflation. Additionally, sectors such as pharmaceuticals, automobiles, and cement will see margin expansions due to lower import costs,” he explains, the report added.

For global investors, several key sectors are emerging as particularly attractive. Moody’s recently revised Pakistan's banking sector outlook to stable, reflecting a gradual recovery in the economy and an improving fiscal and external position. The IT sector has also shown remarkable growth, with exports reaching USD 2.2 billion in the first half of 2026. The sector is on track to hit a target of USD 5 billion for FY2026, with regional expansion, particularly in the MENA (Middle East and North Africa) region, playing a crucial role in driving this growth.

KTrade Securities research noted the cement sector is poised for a rebound, driven by improving domestic demand, a supportive macroeconomic environment, monetary easing, and a gradual revival in construction activity. Automobile sector has stood out during the first five months of FY2026, with volumes increasing by 48% year-on-year. Further localization of production in collaboration with auto powerhouse especially China is expected to continue supporting both volumes and earnings.

Chinese new energy vehicle giant BYD is planning to launch its first car produced in Pakistan by mid-2026 in response to the growing regional demand for electric and plug-in hybrid vehicles. “The second phase of CPEC, which features business-to-business cooperation in the private sector, places greater emphasis on manufacturing, agriculture, technology transfer and the development of industrial zones which are expected to create more sustainable and productivity-driven growth,” Faran said.

Muhammad Faran Khan suggested while remittances have helped keep the Pakistani rupee in check, long-term growth need to primarily be driven by exports. Pakistan’s monthly exports exceed $3bn for the first time in January, but challenges remain, especially in the textile sector, the backbone of the country’s exports. Jehanzeb Mahmood, marketing advisor at Manzoor Textile, highlights concerns over potential tariff threats from the United States. “The largest exporters depend on the US for nearly 80% of their orders.

If U.S. tariffs increase and big American brands reduce their orders, Pakistan’s textile exports can fall significantly,” he told China Economic Net. “Many companies are forced to reducing dependence on the U.S by expanding into the EU, Middle East, Africa, and other regional markets. They are improving efficiency, managing production costs, and adjusting pricing strategies to protect profit margins,” he said.

The All Pakistan Textile Mills Association (APTMA) has urged the government to immediately engage with the United States to secure preferential market access for Pakistan’s textile exports. Earlier, SAARC Chamber of Commerce & Industry (SCCI) and the South Asian Federation of Accountants (SAFA) warned that the United States’ 19 percent reciprocal tariff is eroding competitiveness, disrupting orders and deepening economic vulnerabilities, projecting a decline in export volumes of 20-30 percent.

Credit: Independent News Pakistan (INP) — Pak-China