KARACHI - The business and consumer confidence is at an abysmally low level since the unrest began in Swat valley. This is also reflected from consumption statistics, low stock market volume and private sector credit off-take. Additionally, the dejection index of countrys informal sector is at peak as trading and export activities through NWFP region are almost at halt. With the recent $1.9b bill passed by US Congress, favourable gesture by IFIs and pledges from Friends of Pakistan, its about time to look at policy action to stimulate economic growth. A 'V shape economic recovery in 2010 is expected on account of higher PSDP, reconstruction of Swat area, exports and low-base effect. The prolong law and order situation is the key risk to our expectations. The JS Research has pointed out this in its report on Swat operation, confidence indicators and outlook. Pakistan is witnessing a worst time in terms of confidence, as reflected from latest LSM, money supply and domestic sales data. However, it is believed that, the worst has reached and economic growth woes will ease from FY10 and onwards. The recent US approval of emergency funds, EU-Pakistan summit and Friends of Pakistan are the key developments in the recent time. It is anticipated that the demand for exports will pick-up - due to favourable access to G-7 markets. Removal of anti-dumping duty on bed linen by EU and ban on vegetable exports by Japan off late, are the prime examples. Additionally, researchers expect huge development outlay on infrastructure and Swat valley reconstruction during FY10. FBS reported a weak set of production number at -20.67pc YoY for March and -7.67 percent for the 9MFY09. Sugar sector production dropped by 70pc YoY, followed by cars and jeeps (51pc), while, the growth of cotton yarn and cotton cloth remained flat. The production growth for petroleum refineries has also dropped by 15pc. In addition to weak exports, it is believed that LSM contraction is also driven by weak domestic demand, as reflected from auto sales down (52pc YoY) and domestic cement sales down (17pc YoY) in April. FBS has also reported a CPI statistics for April 2009 at 17.19 percent YoY, down from 19.01 percent a month earlier. Interestingly, the underlying (core) inflation for the month depicted a downward trend to 17.7 percent from 18.5 percent month earlier. Researchers believe the price pressures are still not on ease, as highlighted from 1.4 percent MoM increase reported for March. Both WPI and SPI have also depicted a 1.68pc month-over-month increase. Going forward, we expect price pressure to ease on account of slackening demand pressures as highlighted from Industrial production data and arrival of bumper wheat and minor crops. Another gauge for economic activity has witnessed a steep contraction. According to SBP, credit to private sector registered a paltry sum of Rs48bn during July to April, compared to Rs371bn last year. Analysts believe slow pace of credit is combination of supply and demand squeeze. Money supply has increased meagre by 1.88 percent YTD, compared to 8.39pc last year. The outlook of private credit will likely to remain subdued until the liquidity outlook improves. With the reimbursement of external flows we expect improve liquidity in the months to follow. On the back of weak data set supported by production statistics, domestic sales and credit growth data, analysts at JS research expect inflation and twin deficit to be under control, while weak growth outlook should prompt SBP to cut rates. Researchers expect SBP to cut policy rate by another 300bp in 2009. However, the timing of the rate cut will depend on the outcome of ongoing IMF quarterly review. Sadiq Rizvi