“Meanwhile, the decline in industrial sector growth in Q1-FY25 moderated relative to last year, “said the State Bank of Pakistan’s monetary policy statement. Moderate it did. From negative 0.97 percent in Q1 FY25 to negative 0.85 percent in Q1 FY24. Not sure if one can take a lot of heart from the negligible difference. More so, when the FY25 year-to-date is the exact opposite of FY24, where LSM growth was on a revival path, as opposed to the decline deepening month after month in 5M FY25.
Much like the previous statement, the central bank marked textile, food and beverages, and automobile, as sectors having shown noticeable improvement. This time around, the petroleum sector had to be dropped from the list of noticeable improvements, as it entered the red zone. The heavyweight food& beverages and textile sectors combined with a weight of 33 percent –registered a weighted increase of less than 2 percent year-on-year.
With November 2024 LSM growth contracting 3.8 percent year-on-year, the cumulative growth for 5MFY25 tanked to 1.25 percent – the lowest level in 12 months. November 2024 LSM reading is even lower than November 2018, and the 5M cumulative readings barely match that of FY19. The diffusion index once again breached 50 in November 2024, with 12 of the 22 sectors showing contraction. It is worth mentioning that half of the 22 LSM sectors have a lower index value than at the start of the base period in FY16. A quarter is positive only within a single-digit percentage growth.
Wearing apparel continues to remain the largest contributor in terms of impact accounting for half of the positive growth during 5MFY25, despite a little setback in November exports that went down year-on-year. Readymade garment export quantities have been seen moderating of late, and the latest export data released by the PBS puts the 1HFY25 growth to 10 percent, which is likely to put more pressure on other sectors to do the heavy lifting.
The second biggest positive contribution comes from the rapidly reviving automobile sector. The momentum has lost some pace in the last three months, but most factors point towards continued revival of the sector, particularly in the light of the central bank’s rapid monetary policy retreat. The low base is likely to keep the growth coming, as even after rebounding, car production in FY25 is 40 percent lower than the 100-month long-term average.
The heavyweight textile sector with the largest weight in the LSM basket clings on to meager growth, as both cotton yarn and cotton cloth production numbers are significantly down from the historical long-term averages, having only inched up from an all-time low. The sector’s overall LSM index value of 85 shows how far back the largest industrial employer has gone back.
The construction-related industries remain sluggish, showing no signs of revival despite operating from a low base. Steel, cement, wood, paint, and glass continue to struggle, with production levels falling significantly short of even a decade ago. While favorable interest rate movements may rekindle some interest, constrained public sector infrastructure spending—driven by the government’s focus on fiscal balancing—is likely to keep growth in check.
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