Weakness in domestic demand, power shortages and deterioration in law & order situation have shrunk Large Scale Manufacturing (LSM) growth, said SBP's Third Quarterly Report. The report pointed out that growth in LSM has been negative for the 10th consecutive month in March 2009, the longest period in which production continued to shrink.
LSM growth has dropped by 7.6 percent during July-March FY09 compared with a 5.0 percent rise in the corresponding period of FY08. "Decline in external demand and sharply lower fund flows amid global recession probably contributed to slowdown in domestic manufacturing activities, while on the domestic side Weakness in domestic demand, worsening power shortages, structural problems and poor law & order situation are some important factors responsible for the decline in LSM production," the report said.
Consumer durables industry witnessed drastic decline in production during July-March FY09. In particular, jeeps & cars sub-sector is the worst hit by the sluggish demand due to continued increase in prices, rise in cost of financing and lower availability of institutional financing given the risk averse behaviour of banks amid increasing NPLs under consumer financing and liquidity problems.
The report pointed out that production decline in cooking oil & ghee industry is due to the combined impact of weaker domestic demand as well as uncertain international prices of key inputs. Similarly, textile industry suffered due to domestic as well as external shocks. Power outages, increase in utility charges and higher financial cost were some domestic factors responsible for a drag in textile sector, weak external demand amid global recession hurt production in this export driven sector.
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