Consumer spending dips

Published May 06, 2013 08:45am

CONSUMERS have tightened their purse strings as the country enters the final stretch in the run-up to the general elections.

Consumer spending dipped in April with the start of electioneering. Market watchers expect the depressed trend to continue this month.

The household spending, they believe, will perk up in June to the normal level after the next government settles in Islamabad.

The election-related expenditure by political parties and candidates for the provincial and national assemblies is not uniform across regions and has merely benefited a few specified service providers. It, therefore, does not compensate for the loss of business to sectors affected by the lower consumer buying.

The ready data of consumer spending is not available. However, market associations from major cities confirmed to Dawn that activity in the local market has been low since the launch of the election campaign last month.

According to the official annual data, consumer spending in Pakistan accounts for about 70 per cent of the national economy.

Besides political uncertainty traders identified the fear of terrorist attacks at public places to be the single most important factor that has kept consumers away from the markets.

Overspending in March by average urban middle class households might also have contributed to the sub-normal business activity witnessed in subsequent months. At the start of the academic year in April, parents are required to spend heavily on school-related items such as books, uniforms, shoes, etc., for children. Sometimes they end up in debt that they need to clear later. It takes a toll on their disposable income.

There are reports of weak demand in both wholesale and retail markets with particularly dull trading in the segment of consumer durables. The electronics, furniture, construction-related material and many services have witnessed noticeable slump.

The market of essentials is less elastic and the impact of election on this sector is not as significant. The consumption of wheat flour, rice, edible oil, tea, milk, sugar, etc. rarely diverges from the existing trend.

Facts gathered indicate that classes at the two extremes of the social spectrum have not been as responsive to changes in the political environment as those in between in the context of family spending behaviour.

It is said to be the middle class that decides the direction of the economy whose family income falls in the range of Rs30,000 to Rs200,000 per month.

Families with income less than Rs30,000 subsist on bare minimum level and lack space for manoeuvrability in their budget. Such families have comparatively limited choices and cannot afford to let outside factors upset the difficult balance in their family budget.

Whereas families earning over Rs0.2 million constitute a small percentage of the population that tend to operate at different levels. “The elite likes to enjoy life at a safe distance from dust and dirt on streets. They like to shop in style. Their daily needs are catered by a few dozen super markets in major cities”, remarked an economist underplaying the share of rich in local markets.

A telephonic informal survey indicated a major fall in demand of non-essential items. Karachi, it is believed, was hit hardest also because the city was forced to shut down many times over the past few weeks. The fear of terrorist attacks at public places, it is projected, led people to avoid visiting market, unless absolutely necessary.

“The market is down by at least 35 per cent. The retail of non-essential items such as plastic goods, cosmetics and toiletries, artificial jewellery etc., have taken a greater hit. Frequent shutdowns have weakened the bond of customers with retailers. For us it matters”, Rafique Jadoon, President All Karachi Anjuman-e-Tajiran, told Dawn over the phone.

“Over the past four weeks there have been three strike calls but for various reasons bazaars have been affected for 10 days. Karachi is the trading hub, all major businesses have linkages here, so a dip in commercial activity in the city impacts the level of economic activity in the whole country”, Chairman, Alliance of Market Associations, Atiq Mir, commented.

“People in Lahore are participating in election activities but seem to be reluctant to spend the way they do otherwise. It is hard to rationalise their behaviour but markets in the city, rife with political activity, are dull”, Rasheed, a shop owner in old city said.

“It is not surprising if rush in the market has disappeared. People in Punjab are too focused on elections to spare themselves for shopping”, a banker from Punjab explained.

Economists and analysts reached over the phone reaffirmed that consumers are exercising restrain and not spending as liberally as they are known to do normally.

“There is anxiety about the outcome of elections and there is general fear of terrorist strikes. I am not surprised if activity is currently depressed. But I am pretty sure markets will bounce back next month”, a known analyst at a foreign bank commented.

“Pakistanis are compulsive buyers. The performance of consumer product giants hold testimony to the fact”, he said.

“The fast moving consumer goods companies are doing a roaring business. The 26 consumer goods companies have seen stock prices climb on average by around 55 per cent last year, outperforming the KSE-100 index gain of 43 per cent”.

In the great bull market that saw the KSE-100 index cross the stunning 19,000-level, the investors in consumer goods companies have mopped up heavy capital gains.

Consumer spending in Pakistan increased to Rs4,823 billion in 2012 from Rs4,323 billion in 2011, as reported by the State Bank of Pakistan. Historically, from 2000 until 2012, consumer spending averaged Rs3,739 billion reaching an all time high of Rs4,823 billion in June of 2012 against a record low of Rs2,884 billion in June of 2000.

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