Twelve out of 22 LSM sub-sectors shrank in January 2025, extending the diffusion index’s sub-50 streak to five months. Large-scale manufacturing (LSM) posted negative 1.2 percent growth, marking the third consecutive month in the red. The bigger picture is even grimmer—seven-month cumulative LSM growth stands at negative 1.8 percent, the sixth straight negative reading and the lowest since FY21.
LSM readings since the start of FY25 have consistently been the lowest since FY21, and in some cases, even lower than levels seen seven years ago. January FY19, for instance, had a higher LSM index value than January 2025. Pakistan has already seen LSM contract in eight of the last ten quarters—an unprecedented stretch of decline.
That 12 of the 22 sub-sectors now sit below their index value from the start of the base period nearly a decade ago speaks volumes about how far some industries have fallen. And with structural inefficiencies and shifting market dynamics, not all of that lost ground may be regained.
The bright spot in LSM remains wearing apparel, driven by readymade garment exports, which accounted for half of the positive contribution during 7MFY25—while ten other sectors combined made up the rest. January 2025 saw Pakistan’s readymade garment exports hit an all-time high of 7.7 million dozen pieces. But February brought a reality check, with a 15 percent month-on-month drop, also declining year-on-year. Despite likely remaining the top contributor in February, cumulative growth has now slowed to 9 percent, down from the high teens seen in the first quarter of FY25.
The automobile sector is the second-biggest contributor, riding on a strong recovery. A low base effect continues to fuel growth, with momentum carrying into February as car production for 8MFY25 jumped 42 percent year-on-year. Cheaper consumer loans and stable prices are likely to keep the sector on an upward trajectory in the months ahead.
Growth in the heavyweight textile sector, measured by cotton yarn and cotton cloth output, remains stuck at 2 percent year-on-year—despite a very low base. The sector’s index value stood at 84 in December 2024, marking the 28th consecutive month below 100, a steep fall from its peak of 115 in April 2022. The strain is also evident in employment data, with Punjab’s latest figures showing the textile employment index at its lowest in two years by the end of the first quarter of FY25.
Among other notable sectors, pharmaceuticals, and POL have managed to stay in positive territory, though momentum has faded, with growth hovering at a meager 2 percent year-on-year. The construction-related industry remains under heavy pressure, and the much-anticipated interest rate reversal has yet to make a dent—cement, glass, steel, paints, and wood all continue to lag behind their near-past historical averages. White goods, too, show no signs of a meaningful rebound, as reflected in the sluggish performance of electrical equipment, from refrigerators to TV sets and ACs to electric fans.
It may not be a lost cause just yet. The State Bank of Pakistan’s Business Confidence Survey offers a glimmer of hope, with industry capacity utilization climbing to 66.86 percent in February 2025—up nearly 450 basis points month-on-month and the highest February reading in three years, even after adjusting for seasonality. The record-breaking credit spree in the second quarter of FY25 has yet to translate into higher capacity utilization, but if Purchasing Managers’ Index trends and other sentiment indicators from the Confidence Survey are any guide, the second half of FY25 could finally start putting the brakes on the decline.
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