Large Scale Manufacturing (LSM)growth settled in negative double digits for the outgoing fiscal year. This is so rare that it happened only once in the last 15 years – and that too during the peak Covid era. June 2023 saw LSM growth go down by another 15 percent year-on-year – fifth straight month of double-digit negative growth and twelfth straight month of negative year-on-year growth. Four consecutive quarters of negative LSM growth is also a first barring Covid. With Pakistan’s much-debated 0.29 percent GDP growth for FY23 based on negative 7.98 percent LSM growth – the revised numbers will most likely take the GDP growth for FY23 into negative territory as well.
The story has not changed much in the past six months or so – with all but four sectors showing negative year-on-year growth. The four in positive territory have a combined weight of 8 percent in the LSM basket. Most of the positive contribution comes from the newly inducted wearing apparel segment – that actually tracks monthly export quantity of readymade garments. Football and furniture export quantities have shown sizeable growth as well – all of which were only inducted last year as LSM base was revised.
Pretty much everything else is painted red –from petroleum to fertilizer, and from chemicals to automobiles. Pakistan’s decision to restrict imports has reflected well in the LSM numbers for most part of the last 12 months. The rising cost of doing business as energy and credit costs have shot up significantly from a year ago –has meant businesses are struggling to keep up. Record high household inflation and the resultant erosion in disposable incomes has ensured demand destruction.
Food manufacturing slowdown is headlined by double-digit drop-in sugar and wheat production – whereas cooking oi and ghee have shown remarkable resistance despite massive price increase over last year. Soft drinks and mineral water held on despite various taxation measures at the start of 2HFY23. Tobacco’s story is well-documented, as FBR’s measures have meant more and more smuggled sticks making their way into the market.
While the base effect will come into play from July onwards –a trend reversal is not necessarily a forgone conclusion. The pace at which energy and transportation costs have increased warrants a second round of inflation – testing consumers’ purchasing power once again. Mind you, that much of the story has revolved around export growth in LSM - and that could well be challenged in FY24, as textile players have termed the prevailing energy tariffs a death blow to the sector. Some other sectors may take much longer to revive – such as pharmaceuticals – where the exit of MNCs may well have caused a more permanent debt. The bottom may well be here. But that is about the only good news around the LSM.