Large Scale Manufacturing (LSM) shaved another 14.4 percent year-on-year in May 2023. All eleven months of the fiscal year 2023 have so far recorded negative growth. This has never happened before in recorded history – not even during the worst Covid period. On a cumulative basis for 11MFY23, the growth is now down to 9.9 percent – lowest ever sans peak Covid. Manufacturing recession has been a long-forgone conclusion – as Pakistan is well in course to register four consecutive quarters of negative large-scale industrial growth.
Nearly 70 percent of the 123 items tracked by the PBS for LSM tabulation have reported negative year-on-year growth for 11MFY23. The base has broadened every month in the fiscal year so far, with more and more items, and in most cases, entire sectors, reporting negative growth. The only sectors still in the positive territory – are the newly included ones based on export quantities, namely wearing apparel (readymade garments), football, furniture, and leather.
Exports stayed low for most of the second half and that also started to show in cumulative LSM growth. With full year numbers out – LSM growth will further be dented in June – as furniture growth is down to single digits from as high as 50 percent by the halfway stage. Footballs and readymade garments too have shown a slowdown in exported quantity. Whether or not the LSM growth crosses negative double digits will be known in a month – but it will certainly mean a big revision in the provisional numbers of negative 7.98 percent used for GDP estimation. This is almost certainly going to put the revised GDP growth for FY23 in the negative territory.
All else continues to be painted in red as industrial activity still reels from a variety of factors from floods in some cases to import restrictions in others, and from demand destruction owing to eroding purchasing power to expensive credit. The recent IMF country report on Pakistan is a mixed bag in terms of LSM future, as it ensures unrestricted import movement on the one hand, while ensuring further tightening of monetary policy on the other.
Inflation seems to have peaked but LSM may take more time to bounce back given the extent of the fall that is broad based like never before. With energy prices (both gas and electricity) all set to be revised up considerably once again, soon after the withdrawal of all concessional energy pricing schemes for industries of all kinds – it is hard to see how production bounces back, even if the growth has bottomed out.
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