LSM growth: though small, it is precious

Latest numbers suggest that large scale manufacturing businesses may be gradually finding feet. Production by the LSM sector grew by 0.66 percent year-on-year in the first five months of current fiscal year, after having grown 0.67 percent in the Jul-Oct period.
But a closer look at the month-on-month data reveals that the industry is still struggling. Data released by Federal Bureau of Statistics show that barring the exceptional growth of 7 percent in October, output, as measured by LSM index, fell by nearly 3 percent month-on-month in November.
In fact, the countrys biggest export generating sector, textile, is still weak relative to last year, despite the sharp jump in net credit disbursed to the sector in October. Perhaps, that can be partially explained by the whopping increase in exports of raw cotton and yarn.
Although, cement and fertilizers producers have crossed their FY08 production levels, cotton, autos and more importantly iron and steel industry and many others are yet to achieve their pre-slowdown output levels. Some haven even crossed recession levels.
But knowing that credit to manufacturing sector triggers the output with a lag, there is hope. According to central bank data, manufacturers borrowed Rs54.7 billion in December - about 18 percent higher than what they took in the month before.
In an interesting development, however, the decline in consumer loans - that accounts for nearly 12 percent of total private sector credit - is losing pace. According to SBP data, the rate of fall in consumer financing eased to 0.79 percent month-on-month in December, compared to an average decrease of 1.85 percent during the first five months of current fiscal year.
But does this mean that Pakistani consumers will lead the economy out of this slowdown? Its too early to say - just yet.

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KEY INDUSTRIAL OUTPUT

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                                July-Nov  July-Nov   July-Nov

                                  (FY08)    (FY09)     (FY10)

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Cotton yarn (000 MT)             1,237     1,233       1,204

Cotton cloth (mn Sq M)              428       426         423

Vegetable ghee (mn litres)          492       430         429

Petroleum products (mn litres)    5,759     5,325       4,948

Cement (000 MT)                  10,951    11,153      12,776

Jeeps and Cars (# of units)      75,127    41,792      47,034

Iron & Steel products (000 MT)   3,805     2,630       2,211

Fertilizers (000 MT)             1,207     1,262       1,296

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Source: FBS