LSM posts nine-year-high growth

Large Scale Manufacturing (LSM) has registered a healthy broad-based growth of 10 percent during first quarter of FY18. The achieved growth is the highest quarterly growth since FY09. According to State Bank of Pakistan (SBP) quarterly report on economy, the large-scale manufacturing experienced a 10 percent high growth during Q1-FY18 which is 8.1 percentage points higher compared to the same period last year.
The performance was encouraging as all sectors, barring fertilizer, contributed positively. This broad-based growth can be attributed to better energy availability, improved security situation and rising consumer demand on the back of higher purchasing power and access to affordable credit facilities. The healthy performance of commodity producing sectors had a positive impact on the services sector as well.
The report said that this performance is also the strongest since the manufacturing index was rebased in FY06. Significant contribution came from construction and consumer durables industries A number of developments explain this performance, for example, better energy supplies as reflected in increased availability of LNG and electricity, strong domestic demand and rising purchasing power.
The auto industry gained momentum in Q1-FY18 by registering a growth of 29.3 percent against 2.9 percent during same period last year. The demand for automobiles remained strong as rising income levels, together with low interest rates, led to a significant uptick in auto financing.
The performance of electronics sector is largely dependent on global raw material prices (eg, steel and copper), which makes the sector vulnerable to external dynamics. This correlation was more evident during Q1-FY18 when the surge in international prices of metals constrained its growth to 2.7 percent compared to 15.1 percent a year earlier.
Progress on CPEC-related projects, increased PSDP spending on infrastructure projects, and continued private investment in housing schemes were the primary drivers of growth in the construction allied sectors like steel and cement.
The growth in cement production gained momentum as it increased by 12.4 percent during Q1-FY18, compared to 7.8 percent during the same period last year. Strong domestic dispatches were the major contributor to this growth. Robust domestic demand and attractive margin on local sales also explain this significant fall in exports.
The production growth of the steel sector accelerated during Q1-FY18, reaching about 47 percent, compared to 13 percent during the same period of last year. Steel demand gained traction from an increase in automobile production, besides the ongoing construction activities. Interestingly, so strong was the demand for steel that even a sharp growth in domestic production was not enough to curtail imports.
Production of petroleum products rebounded strongly during Q1-FY18 by registering a growth of 13.6 percent compared to a contraction of 3.4 percent during same period last year. However, Fertilizer remained the only sector within the LSM that recorded a contraction (5.8 percent) during Q1-FY18 compared to an increase of 6.4 percent during the same period last year. This was largely due to lower gas supply to some plants, owing to diversion of gas to the power sector.
Pharmaceutical sector's growth decelerated to 1.6 percent during Q1-FY18 compared to a growth of 6.9 percent during same period last year. This slowdown is understandable, given a steep decline in exports during the period.