LSM numbers turn positive, but things aren sanguine yet

Nice to see the large scale manufacturing output numbers finally ticking up in July. But here is the catch: the overall LSM index compiled by the Federal Bureau of Statistics has slid back to its May 2009 level, thanks to 2.87 percent decline in July on a month-on-month basis. In fact, it has also dropped from its Jan9 level of nearly 205 points.
The central banks data classified by borrowers appears to confirm the same trends. SBP statistics show that manufacturing sector didn take new loans in July, where borrowings by the textile sector fell nearly 7 percent, loans by construction industry decline by 10.7 percent, that by commerce and trade group dropped by 8.89 percent where exporters borrowings eased by a whopping 29 percent.
The trouble is that consumers don seem to have confidence as well, according to a recently published poll by Gallup Pakistan. Corresponding to that, one can observe 19 percent decrease in consumer finance where that for loans for consumer durable, personal use and for transportation fell between a range of 19 to 26 percent. Latest FBS figures also show sliding consumer confidence.
Data reported by Provincial Bureau of Statistics reveals that production numbers of a variety of personal consumption items such as vegetable oil, creams refrigerators, air conditioners and T.V. sets, dropped sharply on a month-on-month basis.
So, really there isn much to cheer about. July numbers have turned green largely due to a low base effect. Unless the government stops shoving out private borrowers, chances are the picture will remain gloomy - with output staying flat around current levels, especially keeping in the mind the recent policy decision to keep interest rate unchanged.
If inflationary risks persist, as feared by the SBP, and if the Friends of Democratic Pakistan disappoint her, the money managers will have little room to cut rates aggressively. In that event, the manufacturing sector will continue with its dismal performance, leaving many without a living.
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