How quickly times change. By the end of 4MFY18, LSM growth was storming with data showing an average growth of 9.6 percent – it’s highest in recent memory. By 1HFY18, LSM growth has decelerated to 5.5 percent with December 2018 posting the worst performance in any of the last six years with a year-on-year drop of 1.4 percent. That’s further down from the 5MF18 growth of 7.2 percent.
The factors still supporting LSM are the usual suspects: autos, cement and iron and steel, for reasons well discussed in these columns. Meanwhile, the bad news is that the export package is not reflecting extremely well in the LSM growth numbers. Yarn and cloth production had risen 0.11 and 0.12 percent in November 2017 year-on-year – higher than growth figures of 0.07 and zero percent growth in 4MFY18. But that growth remains weak in December year-on-year. Even on sequential basis yarn growth (if you can call it growth) stood at 0.4 percent whereas the increase in cloth production stood at 1.2 percent.
The other main export sector in the LSM index – leather items - also has poor performance to show for. On the other hand, cement production, although lower on month-on-month due to seasonal factors, was up in December 2017 year-on-year. But cement exports have been weak due to a host of factors including greater competition by Iran cement makers in Pakistan’s key market Afghanistan and by Indian cement makers in far-flung markets.
The fall in oil production was much anticipated since after the LNG-furnace oil saga, many refineries had eased their operations in November and December 2017. However, considering that refineries resumed operations after December 2017, petroleum production in LSM index should pick up pace in ensuing months. The situation on sugar front has improved with LSM recording sugar production of 843,165 tones in December 2017 compared to production of 40,000 tones produced in the month before. But on year-on-year basis it is still down – partly due to the high base last year, and partly due to the inefficient management where high support prices had led to a buildup of sugar stocks which the mills have been unable to offload in the international market without subsidies and under quota restriction.
The moral of the story: package based economic management can only work to a certain degree; what is instead needed is a transformational change in economic governance failing which cracks will eventually emerge sooner or later. As for growth in the rest of the year, short of a miracle the LSM is unlikely to witness great highs and may even post less than last year’s growth (5.7%) as the last three months of each fiscal year always sees the index tapering off on account of seasonal factors.