Large Scale Manufacturing index for June 2024 went down 0.03 percent year-on-year – the first such instance since November 2023. While 0.03 percent does sound miniscule, it becomes overly concerning when viewed in the context of coming at the back of a massive 18 percent year-on-year drop in June 2023. Still, not being able to keep the nose up despite such a low base is not a pretty sight. For the 12-month period from July to June–FY24 ended with 0.92 percent growth, hardly convincing considering the negative 10.3 percent growth in FY23.
Pakistan’s large-scale manufacturing activity at the end of FY24 is closer to that of five years ago – which tells the magnitude of the problem. June 2024 is also the first time in nine months that the cumulative LSM growth has dipped from the preceding month.
In terms of sectoral contribution, 12 of the 22 sectors continue to be in negative territory, much like last month. When compared to FY23, it is a significant improvement, when all but four sectors were in the red, with the total weight from positive contributors no more than 8 percent. The combined basket weight of sectors in the positive territory for FY24 is much higher, 34 percent.
And if the PBS had used the correct numbers for the sectors that have the single larges positive contribution to FY24 LSM growth, the overall LSM growth for FY24 would be close to zero if not marginally in the red. It has been going on inexplicably for months now, with no end in sight, as the PBS mistreats wearing apparel growth, computed by ready-made garment exported quantity. The PBS trade data shows the ready-made garment exported quantity going up 1.99 percent year-on-year. While computing the LSM, the PBS sees it growing 8.2 percent year-on-year. Both numbers cannot be right at the same time, and one would be inclined to believe the source trade detail data should be the one.
Pharmaceuticals production has resurged from the depths of last year, with the second-highest positive contribution to LSM growth. That said, pharma sector production is still a far cry from the highs of FY22, and the index value at 103 is even lower than seven years ago. Exit of multinationals over the years surely has played its fair share in where the sector stands today.
The textile sector with the largest share of 18 percent in the LSM basket also has the biggest drag on LSM – down 5 percent year-on-year. While 5 percent does not sound that bad in isolation, it is coming on the back of a record downturn last year. The textile production index is in fact at its lowest point since the rebasing started in FY16. The largest items by weight, cotton cloth, and cotton yarn, are both at multiyear lows. The ongoing energy price crisis does not spell a rosier outlook for the near future either.
White goods and automobiles continue to be deep in the red, at or around the lowest since FY16. Significant erosion in consumer purchasing power has kept the growth in check, and a phased reduction in interest rates may offer a glimmer of hope, but would not likely lead to a big reversal in fortunes, given how fast the real incomes have gone down. The LSM should grow from here after two years from hell, but the recovery is expected to be painfully slow.
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