Large Scale Manufacturing (LSM) dropped another 21 percent year-on-year in April 2023. This marks the tenth straight month of year-on-year decline in LSM production –by far the worst stretch of run ever recorded. On a cumulative basis for 10MFY23, the growth is now down to 9.4 percent – comfortably the lowest either side of the Covid quarter.
April 2023 also marked the beginning of what could possibly be the only time in history, barring peak Covid, that Pakistan will have registered four straight quarters of LSM contraction. Theory puts two consecutive quarters of contraction as manufacturing recession – Pakistan is well on its way to register four. There should be no doubts that the country is officially in a manufacturing recession.
The slowdown is broad-based and all but two of the 22 LSM categories reported contraction in April 2023 versus the same period last year. This is now the most LSM categories in the red zone in any given month barring the peak Covid quarter of FY20. Only the export quantities of readymade garments and footballs registered year-on-year growth. That too, in low single digits, as Pakistan’s exports have also come under severe pressure of late. Recall that it was mostly the newly added categories after rebasing exercise, representing g export quantities in select sectors, that made the LSM picture prettier than it was. As the exports die down, especially textiles, the peel is coming off – and the picture looks scarier.
As high base effect sets in, it will not be long before these categories will also slide down into low single digit growth values on a cumulative basis. There is nothing much to write home about all other sectors as the fall is mighty – from food to textiles and from automobiles to cement and from cigarettes to electronics and from petroleum to paper. It is all painted red.
While the CPI inflation may well have peaked and so too the interest rates as a consequence, the LSM may still have some way to go before it finds the bottom. Credit off-take remains abysmal, purchasing power remains low, and Pakistan continues to remain on the brink in terms of macroeconomic and political stability. What is evident is that GDP growth will almost certainly be lower than the estimated 0.29 percent, once full-year LSM numbers are out.