The longest negative LSM growth streak got longer, as per the latest data released by the Pakistan Bureau of Statistics (PBS). February 2024 marks the 20th consecutive month of negative cumulative year-on-year LSM growth. The good news is that this may well be the end of the negative streak, as low base from last year will almost certainly push the cumulative LSM in green for 9MFY24, and beyond. Mind you, the six quarters of LSM recession is the first in Pakistan’s history, but 3QFY24 will likely result in a positive reading, in the range of 4-5 percent, exceptions aside.
The breakdown now has a 50-50 split on positive and negative growth – as 11 of the 22 broad LSM categories are in the green. It is a visible improvement from the same period last year, where 18 categories were painted red, and it stayed that way for four more months. The pharmaceutical sector leads the way for the first time, in terms of cumulative impact, followed by the furniture exports. Combined, these two account for no more than 6 percent of the total LSM weight. Most heavyweight categories from food to textile and from petroleum to wearing apparel are in the low single digits.
Textile, with an 18 percent weight in LSM basket contributes the most to negative growth, as two key categories cloth and yarn continue to be deep in red. Cotton cloth production at 0.58 million square meters is at the lowest in nearly 15 years, whereas cotton yarn production at 1.6 million tons during 8MFY24 is at a decade low. The monthly trend in both cotton yarn and cloth has continued for 17 months – and if stays much of the same for the next four months – textile LSM growth will most definitely end deep in the red for FY24.
There are no major surprises as automobiles continue to drag down the LSM with a negative 41 percent growth. The PBS also continues to mistreat export quantity numbers in the case of wearing apparel, showing readymade garment growth at 3.25 percent for 8MFY24 at 49.2 million dozen pieces. Only that the PBS export data puts the number down to a negative growth of 2.4 percent at 51 million dozen pieces.
The LSM calculation is apparently not taking into account the revisions that happen in the export numbers every month – just in line with revisions in the LSM data itself. What is even more surprising is that the LSM numbers continue to mistreat export numbers even from last year, where no more revisions are taking place – understating them significantly. The treatment means the overall LSM growth is overstated by a fair margin – and should be lower than where it is.
For the months to come, LSM should stage a recovery of sorts and the first quarter of LSM positive growth should be recorded in 3QFY24 after six consecutive quarters of LSM recession. That said, the interest rate cycle reversal may take longer than earlier anticipated and should keep the automobiles and white good growth honest. Another big round of energy price adjustment is around the corner at the start of FY25 and could spell more trouble for textile players – where production is already at a multiyear low. Any revival would be very slow and small.
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