Exports keep LSM high

Pakistan’s Large Scale Manufacturing (LSM) grew 7.8 percent for Jul-Feb FY22 period. The cumulative index for the period, on both old and revised bases, was recorded at highest-ever, taking care of the low base of Covid and the year before. February 2022 monthly reading was also comfortably the highest ever, keeping up with the trend that now goes back to 10 months – where nine have registered highest ever monthly readings.

The growth also appears broad based – as 70 percent of the 123 items recorded in the LSM index have recorded positive growth – up from 58 percent at the end of 1QFY22.The LSM growth on the 2005-06 base is a rather modest 4.5 percent for 8MFY22. Although, all GDP estimation exercise will now rely on the revised base – but the modest growth on old base may well be a truer reflection of large-scale industrial activity.

Here is how the revised LSM index works. It comprises of a broader base with more items, reassigned weights and a larger sample size to choose from. All, ingredients for a more inclusive and representative estimation of industrial activity. But it turns out, the revised methodology becomes of a problem than a solution. It may well be the provincial bureaus struggling to get hold of the required data for the newly inducted categories, but the outcome appears deeply flawed – and will often time offer a false sense of hope or dismay, depending on which way the export market sways.

Recall that 555 percent growth in furniture exports contributed heavily in the LSM growth for 7MFY22. Pakistan’s furniture exports are barely a million dollar a month, and the growth has now come down to 345 percent. With only 0.5 percent weight in the LSM index – it still has the second largest contribution to the LSM growth.

The export data for March 2022 shows furniture export growth is down to 290 percent, and if the trend continues the base impact will soon lead to lower growth. The furniture export in dollar terms is up by a little over 100 percent, but the unit value has come down by half – which should not necessarily mean increased manufacturing activity.

Pakistan’s football exports are also gaining traction and the recent trend suggests that football manufacturing with 0.3 percent weight in the LSM basket, could soon outdo contribution from heavyweights such as automobiles, textile, and food. Around 10 percent of the rebased LSM relies on export quantity data – and that is where most of the deviation from the old base emanates from. It currently puts the LSM in better light – but could also turn for the worse when the tide changes – without necessarily reflecting actual industrial activity.