Pakistan economy grew 3.7% in first quarter of FY26

Pakistan’s economy has posted a stronger-than-expected start to fiscal year 2025-26 (FY26), with gross domestic product (GDP) growing by 3.71% in the first quarter, according to a statement shared by Planning Minister Ahsan Iqbal on social media.

The Q1 performance marks a 2.15 percentage-point improvement over the same quarter of FY25, indicating what the minister described as a “qualitative change in the trajectory” of economic growth.

In his post, Iqbal contrasted the early FY26 momentum with the uneven recovery seen in FY25, when quarterly GDP growth progressed gradually through the year.

During FY25, growth stood at 1.56% in Q1, rose to 2.03% in Q2, 2.66% in Q3, and accelerated sharply to 6.17% in Q4.

By comparison, the opening quarter of FY26 has begun at more than double the growth rate recorded in Q1 of FY25, suggesting that the economy has entered the new fiscal year with stronger underlying demand and output.

A key driver of the improved performance is the industrial sector, which expanded by 9.38% in Q1 FY26, a dramatic turnaround from the near-stagnant 0.12% growth recorded in Q1 FY25.

This rebound points to a revival in manufacturing and related activities, which had been under pressure last year due to macroeconomic tightening and weak domestic demand.

The FY25 backdrop was challenging.

Economic activity throughout much of the year remained subdued as Pakistan implemented fiscal consolidation measures, including energy subsidy withdrawals, while households and businesses grappled with high food inflation. Growth only gathered pace toward the end of FY25, reflecting base effects and some easing of constraints.

According to Iqbal, the stronger Q1 FY26 outcome is particularly notable because it has occurred despite significant headwinds, including the impact of floods, the continued absorption of earlier fiscal tightening, and the lingering effects of subsidy reforms. He argued that the resilience shown by industrial output under these conditions underscores an improving growth dynamic compared to the previous fiscal year.

Economists note that while one quarter does not establish a full-year trend, the comparison with FY25’s slow start highlights a potentially firmer foundation for FY26. Sustaining this momentum, however, will depend on macroeconomic stability, inflation management, and the pace of structural reforms in the months.

At the time of announcement of Monetary Policy, State Bank of Pakistan, Governor Jameel Ahmed said that contrary to initial projections, the economic impact of the recent floods has remained well contained and significantly lower than in previous flood episodes.

As a result, the authorities are more confident of achieving real GDP growth within the initially projected range of 3.25-4.25%, with growth likely to materialize toward the upper end of the range. The SBP further noted that LSM has posted growth, with both the number of contributing subsectors and their relative weights improving, pointing to a more broad-based recovery.