The fiscal year FY25 started on a positive note for Large Scale Manufacturing as the index for July2024 registered a 2.23 percent jump year-on-year. While 2.38 percent is neither here or there, it still looks underwhelming considering it comes at the back of negative 5.4 percent growth in July of last year, which itself was coming from a low base from July 2022. Recall that Pakistan’s FY24 LSM growth in FY24 was a miniscule 0.9 percent – that too after a massive 10.3 percent drop in FY23. July 2024’s index reading, while better year-on-year, is still lower than that from six years ago. That is how far back the clock has been reset for most industrial and manufacturing activities – after the riot that started a little over two years ago.
In terms of sectoral contribution, the diffusion index shows a much-improved picture from most of last year, as 14 of the 22 broad LSM sectors are in positive territory. For the best part of FY22 and FY23, nearly two-thirds and half of sectors stayed in the negative territory, respectively.
The combined basket weight of sectors in the negative territory for July 2024 is close to 16 percent – a vast improvement from earlier months. After a very long time, the all-important heavyweight textile sector has made it to the positive territory. From being the single largest negative contributor to LSM, textile in July 2024 contributed the most to the positive growth. That said, textile output is still way lower than July of nine years ago – the starting point of rebased LSM. The needle has finally moved on both cotton yarn and cloth production, driving the sectoral growth ahead.
The second largest contribution is from the wearing apparel sector where readymade export quantities are used to compute the index value. The same old story repeats itself with the PBS mistreating export quantity – leading to overstating the impact. The quantum of overstatement is reduced from last year, as an 8.5 percent growth is shown at near 10 percent in the LSM computation. this has been flagged for well over a year in this space, and the PBS has not come up with an explanation. It is safe to assume this will go on this way.
Other sectors that have risen from the ashes are automobile and tobacco– thanks largely to the low base from the decade-low production witnessed last year. There is not much to rejoice, especially in the case of automobile, as even the revival from such an abysmal level does not appear on sound footings, as evident from decline on a month-on-month basis. The reversal of interest rate cycle and relative stability in prices should theoretically pave way for resurgence, but the beating that purchasing powers have taken in the past 18-24 months will not make it that easy.
Textile, food and automobile sectors will be critical to revival of LSM. Low base will help in most cases, but it may still be a painfully slow recovery, given the IMF is breathing right down the neck.
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