LSM’s growth in the fiscal year so far is a story of two Cs: consumerism and construction. In the face of weak domestic savings it is also a story of import growth outpacing the growth in exports. Here is the how part!
The overall LSM index grew nearly 13 percent year-on-year in July 2017. Compared to that, the growth in vegetable ghee, cooking oil as well as that in automobile sector has been phenomenal, signifying sharp growth in the consumer economy. The consumer electronics sector didn’t see much of growth in July 2017 – ranging between a drop of 14 percent in the case of refrigerators to an increase of 16 percent in the case of deep freezers (perhaps Eid ul Adha affect) – but on the whole the sector has seen some sharp growth in year ended June 2017.
Cigarette production jumped a whopping 207 percent in July 2017 on what seems to be the consequence of relatively better federal budget FY18 as the finance ministry chose against raising FED on the top two slabs, in addition to the introduction of a bottom slab that might have helped the formal players fight the cheaper duty-unpaid brands in the affordable segment. Be that as it may, the bulk of that growth is driven by low base affect, where it is pertinent to note that the overall trend in cigarette production remains on a downward slope.
Meanwhile, the growth in construction sector – namely iron and steel, and cement also outpaced that in the benchmark manufacturing index. The CPEC-led infrastructure spending story continues to drive that part of the economy.
Looking at things from the import-export lens, growth in cloth and yarn production has been flat, following the general trend since 2013, whereas growth in leather products, including upper and sole leather and footwear was merely two and half percent. Cement production was indeed quite sharper than usual, but as we all know cement exports have been slipping in recent years. The 2MFY18 trade data shows that cement export quantities dropped 14 percent after falling 24 percent in the fiscal year 2017.
On the other hand, import-driven production – i.e. automobile and petroleum products – have been on the rise. The former reflects improvement in economy and consumerism, whereas the latter is linked to higher consumption driven by increasing car sales and lower fuel prices. The recent wave of expansion in the retail network of oil marketing companies also points toward the notion of rising retail spending in the country. That’s all from the monthly LSM update for now; the LSM story is good for now. But then again it is just the first month of the fiscal year, so don’t get too excited just yet.
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