L-S-M!

Meanwhile, a bit of good news on the macroeconomic front! Recall how at the time of last released Economic Survey, the National Economic Council (NEC) had forecast a full year Large Scale Manufacturing (LSM) growth of 4.93 percent for the fiscal year ending June 2017. Recall also how this column had raised doubts over NEC’s claims, arguing they are likely to have underestimated full year LSM growth.

Turns out that the LSM numbers released since then – and they are released with quite a lag – suggest that the full year growth will indeed be higher than previously estimated by the NEC. According to the latest industrial production index released by Pakistan Bureau of Statistics, the 11-month LSM growth stood at 5.58 percent. That’s much higher than 3.49 percent in the eleven month period last fiscal year, and 3.33 percent in the fiscal year before.

While being cognizant of the cyclical fall in the LSM index in June, this column estimates full year LSM growth to land between 5.73 and 5.82 percent, i.e. about 80-90 basis points higher than what’s been earlier estimated by the NEC. In order to meet the NEC target, the LSM index would have to fall by 13 percent month-on-month or 4.4 percent year-on-year, whereas nothing in economic fundamentals suggests such a steep decline to have happened in June.

Considering that the LSM is estimated to have 10.7 percent share in the country’s total GDP in the year ending June 2017, the higher than estimated LSM growth implies that Pakistan’s GDP growth for FY17 will likely be revised upwards on two accounts.

First, the direct, albeit nominal, impact of higher than estimated LSM growth on overall GDP growth; this column expects that impact be in the tune of 0.10 percent. And second, its cascading affects on the service sector GDP estimates. Granted that the overall impact on the GDP may still be nominal, but in the face of recent political setbacks, the PML-N government can be expected to shine their shop at the most modest of achievements.