LSM slowdown

For a month that usually sees a fall in large scale manufacturing (LSM) on month-on-month basis, November 2014 surprisingly saw production rise over October 2014 levels. A month-on-month growth of 0.77 percent in November is small, but against an average negative month-on-month movement of 2.79 percent in preceding five Novembers, it is quite a feat.
However, that is all the positive there to it. Even after accounting for that month-on-month growth, which enabled the index to post a year-on-year growth of 4.89 percent in November 2014, as against 2.73 percent last year, the 5-month numbers don look good.
According to Pakistan Bureau of Statistics (PBS), the 5MFY15 growth number stood at 2.48 percent year-on-year compared to 5.44 percent last year. The slowdown in growth is reminiscent of FY13, when the 5MFY13 growth number stood at 2.35 percent - with the then full year number landing at 4.1 percent.
What is interesting is that these numbers might actually be revised downwards - that is if the trend in fiscal year to date is anything to go by. A look at the comparative chart shows how provisional numbers released by PBS have been significantly revised downwards in July, August and also to some extent in October. (The revised numbers have been obtained from the central banks website).
In part the current LSM slowdown reflects a decline in fertilizer production; PBS data shows that fertilizer output fell by 2.5 percent in 5MFY15 as against the phenomenal growth of 32.8 percent in the year before.
But fertilizer is not the only reason: production of electronic goods also eased to 8.5 percent from 23.6 percent in 5MFY14; that of LSM index heavy weight, textile, slowed to 0.73 percent from 1.86 percent, whereas growth in the production of food, beverages and tobacco also slipped 0.62 percent in 5MFY15 as against 9.9 percent in the year-ago period.
As for the outlook, the central bank says it expects better electricity supply, stable exchange rate, and lower prices of key raw materials to support higher LSM growth. The interest rate cut - that should trigger at least some demand for credit - can also help LSM recover from its current slowdown. But whether the support will help it go beyond the seasonal Dec-Mar spike is another question.