LSM: Still in red, just

The Large-Scale Manufacturing (LSM) Index, on a cumulative basis, stayed negative for the 19th straight month, as per the latest data released by the Pakistan Bureau of Statistics (PBS). Pakistan is also supposedly in a phase of “macroeconomic stability” and has been there since the end of 1QFY24. It takes incredible foresight to find stability when a country’s industrial production has been in literal recession for over six quarters.

And the foresight here is that the days of negative growth may finally be numbered. If nothing extreme is on the cards, next month’s LSM reading should be the first time in what now seems ages, that the LSM will have marked positive growth. It will largely be because you can only go down this much and not a revival of any sorts. Recall that LSM for the last five months of FY23 from February to July had gone down by an average 20 percent. The base effect will be in play to bring the LSM back to green.

Now on to the LSM composition itself. After a very long time, 13 of the 22 broad LSM categories tracked by the PBS showed year-on-year growth – albeit, minimal in most cases. Textile sector, measured primarily by cotton yarn and cotton cloth production, remained the largest contributor to negative growth with the highest basket share of 18 percent. Within textile, cotton yarn production of 1.4 million tons is during 7MFY24 is the lowest in at least a decade. The cotton cloth production of 0.5 million square meters is also the lowest since at least FY15, if not longer.

Readymade garments on the other hand, had the second largest positive contribution with only a 6 percent weight in overall basket – as the PBS numbers show the readymade garment exports jump 5.9 percent year-on-year. This can’t be further from the truth, as the actual PBS numbers show no growth in ready-made export quantity during the period.

The PBS while computing the LSM appears to take no stock of revisions made in the monthly trade data. In the just released detailed export numbers, the wearing apparel LSM growth for February shows negative growth for the first time this fiscal year. If done correctly. 8MFY24 LSM should show the segment going down 5 percent year-on-year.

On the positive side, food and pharmaceuticals are expected to lead the recovery for most of 2HFY24 and beyond. The likes of automobiles and textiles appear to be too deep in trouble to stage a recovery in the next quarter or two, despite the base effect. The expected reversal of interest rate cycle should offer a breather in some cases from the construction related industry to automobile and white electronic goods. The ever rising energy prices, especially with the IMF to be on board for the best part of next four years – could play spoil sport, for big textile players.