Pakistan’s Large-Scale Manufacturing (LSM) seems to be on a path of recovery. The worst clearly seems to be over – at least for now – as July 2020 numbers have shown improvement in LSM index in terms of the pace of year-on-year growth, even as growth may not be as broad-based as one would like it to be.
The fiscal year has kicked off with 5 percent growth in July 2020, which is arguably the fastest 1-M growth since FY18. If July 2019 had witnessed a 5.7 percent year-on-year fall in LSM, then July 2018 posted a growth of barely 1 percent, largely a reflection of the high base set in July 2017. Given successive contraction in LSM index for each month in FY20 (save for sugar led growth in Dec-2019), one can expect low base affect to drive LSM growth in current fiscal year, especially as interest rates are substantially low whereas the government looks eager to work on the housing agenda as well as infrastructural development in Karachi.
Most of the LSM index heavy weight items have posted growth in July 2020; or have otherwise reported much less contraction compared to previous months. Heavy weight items like cotton yarn, cigarettes, cooking oil, soft drinks, POL products, billets/ingots, cement are in the former category, whereas auto and H/C.R.Sheets/strips/coils/plates etc. and cotton cloth are in the latter category.
It is heartening to note that the recovery is broad based compared to the lockdown months. If 75 out of 112 items tracked by Pakistan Bureau of Statistics reported contraction in April 2020, then by July 2020 that number reduced to 54. However, as the table shows, the number of manufacturing industries reporting contraction is still much higher compared to the number in July 2017.
As far as the outlook is concerned, it is still too early to call victory on LSM, as corona cases have begun rising again, both in Pakistan and elsewhere in some parts of the developed world with whom Pakistan has trading relationships. While one can only wait and see how the virus pans out, in the meanwhile, it would be an interesting exercise for academics or central bankers to look at labour force trends in specific sub-categories of manufacturing items tracked by the LSM to glean insights on the degree to which changes in LSM may have affected unemployment.
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