Large-scale manufacturing output may have fallen month-on-month in April, but it appears that Pakistan will eventually meet its annual LSM growth forecast of 4.4 percent this year.
Still, there are reasons to be concerned.
Production of cotton yarn was down about 10 percent month-on-month in April that took the monthly yarn output to its lowest in recent memory. Data released by Federal Bureau of Statistics shows that cotton cloth production in April also eased to its lowest since February 2009.
Since yarn and cloth woes can be attributed to the whole imbroglio between millers and the value-added sector, one can expect that production would have dropped in May as well.
In addition to sliding cotton output, the manufacturing of iron and steel products fell quite noticeably in April. According to FBS data, iron and steel output decreased 15 percent to 0.38 MT as against an average of 0.45 MT in the first three quarters.Reportedly, there is a shortage of raw material to produce billets, hot/cold rolled plates amongst other products, which would have likely continue to effect iron and steel output in May as well.
If these factors continue, LSM output, estimated in the recently released economic survey, will have to be revised.
But if historical month-on-month changes are anything to go by, one can still expect a full-year growth of 4.5 percent*. And this growth can be expected to continue until December - well supported by the low base effect.
What will be the quantum of LSM growth after December, however, is difficult to estimate at the moment. But the risks are spelled out in favour of the bear; higher energy tariffs, circular debt, risks of increase in borrowing costs and of course the most reported phenomenon of crowding out.
Clearly, the agenda is not of normalcy.
* This is in case if output grows in congruence with the trends seen between FY04 and FY08; FY09 being an anomaly is not considered.
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