LSM still positive, but just

Pakistan would do well to even reach close to its targeted GDP for FY12 as the latest Large Scale Manufacturing (LSM) statistics released by the Pakistan Bureau of Statistics (PBS) shows a slowdown in the manufacturing growth rate, which is worsening by the day. Despite the economic challenges and the peculiar energy situation, the LSM numbers have so far managed to stay in the positive zone, but only just and no more. The LSM index during July-December FY12 managed to grow by a mere 0.83 percent against the corresponding period last year. The major sub-indices, the OCAC index and the Ministry of Industry index witnessed a slump of 0.25 and 0.65 percent, respectively, during July-December FY12. The respite came from the Provincial Bureau of Statistics, which managed a significant growth of 5.16 percent during the period. Amongst the major growth segments was Food, Beverages & Tobacco, which grew by an impressive 7.8 percent during the period against the same period last year. This segment has a significant weight of 12.37 percent in the LSM index, which took the yearly growth impact on the overall index to 1.22 percent. The growth outlines the booming consumerism and its potential in Pakistan, regardless of the tough economic conditions. The textile sector has the highest weight in the LSM index of 21 percent. Despite being on the receiving end of the energy crisis and extended gas curtailment, the sector has still managed to stay in the green zone, registering a 0.98 percent growth against the same period last year. The overall impact on the LSM index was that of 0.31 percent. It is feared that textile production in January might have seen a significant slump as the gas crisis peaked at the beginning of 2012. Textile remains the single largest foreign exchange earner for the country, and any major slump in the production numbers would be detrimental for the economy. The government needs to find a way to ensure uninterrupted power supply to the sector as production growth in textiles has been only marginal. On the other hand, crucial industries such as fertiliser, automobile and steel continue to record declines in production. The case of fertiliser is a living example of poor handling of gas resources and ill planning when it comes to gas prioritisation. In the Economic Survey 2010-11, the fertiliser sector was tipped to mark an improvement on the back of significant capacity expansion. But, what is the use of added capacity when there is no raw material to run the plant? This is exactly what has happened so far, as despite having over a million tons of added capacity production registered a decline in comparison to the corresponding period of last year. The decline in the petroleum segment is more of the same story as the energy crisis continues to pile up the inter-corporate circular debt, limiting the refineries ability to procure and refine more oil. There are lessons to be learnt from the LSM numbers and the first and foremost thing that needs to be done is getting it right in the energy department. The trend is not presenting a pleasant picture as the LSM growth, which was 2.07 percent in Jul-Oct, slid to 1.52 percent in Jul-Nov, falling further to 0.83 percent in Jul-Dec. LSM accounts for nearly 12 percent of the GDP, and the slump should be arrested to keep up the hopes of achieving a respectable GDP growth rate.

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LSM index select group
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                         Weight Growth (%)
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Pharmaceuticals             3.62     14.76
Food, beverages            12.37      7.81
Textile                    20.91      0.98
Petroleum                   5.51     -1.84
Fertilizer                  4.44     -3.68
Iron & Steel                5.39     -33.1
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Source: PBS