Jul-Sep 2022 quarter (Q2 2022-23) GDP grew by 6.3% YoY, almost in line with the market expectation. The growth is marginally better (8%) compared to the same quarter in the pre-pandemic era, Q2 2018-19.
Well, the domestic demand is still not that worrisome. Because the economy still has a fairly good appetite but unfortunately it is being addressed from elsewhere (import).
The domestic absorption (Pvt. consumption + Govt. consumption + Investment) grew at a healthy rate of ~7% YoY in Q2 2022-23. Compared to Q2 2018-19, it grew even faster ~12%. These numbers are much higher than corresponding numbers of Q2 GDP.
The pace of absorption seems to have ramped up domestic services but also imports in Q2. The contact intensive services contributed 47% to the overall service sector YoY growth in Q2.
While the non-energy non-gold segment import, which is largely manufactured products, grew at a phenomenal rate , domestic manufacturing declined by 4% YoY in Q2 .
Anyways, the GDP growth is expected to moderate further in Q3 2022-23 due to expected slowdown in exports. But the adverse impact of interest rate hike, etc. on domestic absorption is impending.
Empirical studies* suggest demand responds to interest rate changes with a lag of at least 9 months. If we consider May 2022 as the beginning of interest rate upcycle, then it may start affecting the absorption from mid Q4 2022-23 onwards.
*IMF Working Paper No.10/183