Turbulent times for LSM

After witnessing a phenomenal growth in August this year, the large-scale manufacturing (LSM) numbers have begun to taper off.
According to data released by Pakistan Bureau of Statistics (PBS), August 2014 saw LSM jump by 5.27 percent year-on-year. The last time August had seen such a huge growth was in 2011 when it grew 5.79 percent year-on-year. A closer look revealed that the month-on-month increase of 2.16 percent in August 2014 seemed to be an anomaly as the month of August usually sees negative month-on-month growth.
Enter September and October, and the growth has tapered off. According to the just released PBS data, October 2014 saw the slowest year-on-year growth of 1.82 percent - against an average year-on-year growth of 3.7 percent in the last two years. This comes amid the worst month-on-month performance in October since FY10 with the index down by 1.57 percent. Consequently, the 4MFY15 LSM growth number now stands at 1.96 percent versus 6.13 percent in 4MFY14.
Recall that earlier this month the State Bank of Pakistan has expressed a bit of hope for growth in FY15s LSM numbers.
"We expect demand for automobiles to recover with the reduction in GST on tractors announced in the FY15 Budget; the launch of the new model for Toyota Corolla; and the announcement of a yellow cab scheme by the government of Punjab. Furthermore, domestic demand for cement is likely to pick up, if development projects announced in the FY15 Budget are implemented. In addition, production activities in Pakistan Steel Mills (PSM) have also resumed following the bailout package," the SBP said in the recently-released annual report for FY14.
Some of SBPs expectations have indeed been met. The production of tractors and jeeps & cars have gone up by 60 percent and 14 percent year-on-year respectively in 4MFY15, according to detailed PBS data. Similarly, productions of steel products - pig iron, billets, sheets and coils -have increased in the range of 10 to 25 percent year-on-year.
However, other heavy weight sectors have not performed as much. Textile sector for instance, which has a weight of 20 percent, grew only by 0.79 percent in 4MFY15 as against 2.05 percent 4MFY14. Similarly, production index of food, beverages & tobacco sector - that has a weight of 12.4 percent - rose 1.32 percent in 4MFY15 year-on-year as against 8.4 percent in the year ago period.
Looking ahead, the emerging risks to GSP+, and growing gas and power shortages, the LSM growth story looks turbulent.