Large Scale Manufacturing index for May 2024 grew 7.3 percent year-on-year – the highest growth in 23 months or July 2022 when the LSM took a turn for the worse and stayed in red for a record 17 months. It has since been a gradual recovery – with May 2024 marking the sixth consecutive month of positive year-on-year growth. For the 11-month period from July to May –the positive 0.99 percent reading is also only the second positive LSM reading since July 2022 – the first being in April 2024.
Pakistan’s large-scale manufacturing activity has been set to five years ago or thereabouts. While May’s 7.5 percent month-on-month growth is encouraging, it has to be seen in the context of an 18 percent year-on-year drop in May of last year. With June’s base also set low due to a multiyear low reading in June 2023 – expect the FY24 cumulative LSM to register a growth in the range of 1-1.2 percent at best, notwithstanding revisions.
In terms of sectoral contribution, 12 of the 22 sectors are still in red. Another way of looking at this is to view it as a drastic improvement from the same period last year where all but four LSM sectors registered positive year-on-year growth. The largest positive contribution for 11MFY24 comes from the wearing apparel segment – which is shown to have grown by 9.3 percent year-on-year to 69 million dozen pieces.
On the other hand, the PBS monthly advance release data that tracks shipment-based export quantities shows readymade garment export quantity to have grown by no more than 1.9 percent year-on-year, registering a 2 percent year-on-year growth in dollar terms. The discrepancy between LSM and advanced releases data has continued unabated for over a year now. If the PBS export numbers are to be considered, the actual increase should be much lower and that should mean the cumulative 11MFY24 LSM will still be in red. The PBS would do well to offer an explanation at the least or come up with a correction to correct the anomaly – that is overstating the LSM growth. Whether or not it is deliberate is anyone’s guess, but the numbers do not portray the correct picture.
The other big positive in terms of growth impact came from the pharmaceutical sector, as tablets and syrup production have rebounded from the all-time lows of last year. Pharma sector production is still way off from the FY22 highs, offering hopes for further growth going forward. The petroleum sector is the other one showing signs of a swift recovery, led by increased petrol and diesel production.
The textile sector with the largest share of 18 percent continued to contribute the most to negative growth – having gone down 6 percent year-on-year. There has been a slight uptick in textile production on a month-on-month basis, but both cotton cloth and cotton yarn production on a 12-month moving average basis are still reeling at multiyear lows.
Cement, automobiles, and tobacco have continued to stay in red for two years, with the decline in automobiles and tobacco still running deep in double digits. The low base means LSM will continue to show growth in the months to come, as the macroeconomic situation has improved considerably from a year ago. That said, inflationary pressures still persist, especially around energy pricing, and could well keep the pace of revival slow in FY25.