Manufacturing activity rebounds: Inflation risks cloud outlook: HBL PMI

KARACHI: The HBL Manufacturing PMI, compiled by S&P Global, edged up to 50.9 in May 2026 from 49.9 in the previous month, signaling an uptick in manufacturing activity. However, this improvement is less encouraging than it initially appears, as underlying dynamics point to emerging stagflationary pressures linked to ongoing US–Iran tensions.

New order inflows returned to growth, although the pace of expansion remained subdued and below the long-term average. Conversely, export orders expanded at their fastest rate since February 2025, supported by improving confidence in international markets. Despite this, overall production volumes remained largely unchanged, as gains from stronger orders were offset by rising input costs and continued supplier delays.

Labor market conditions remained weak, with employment declining for a consecutive month amid a softer demand environment. At the same time, input purchasing fell at its sharpest pace since October 2025, as manufacturers opted to run down both pre- and post-production inventories rather than procure inputs at elevated prices.

Commenting on the latest PMI data, Humaira Qamar, Head of Equities & Research - HBL, noted “Business confidence regarding future output declined for the sixth month running to reach a record low. Manufacturers pointed to persistent inflationary pressures and elevated raw material costs as key risks to the outlook. This ongoing deterioration in sentiment, despite the headline PMI returning above the 50.0 threshold, raises concerns whether the recent stabilisation in activity can be sustained amid an increasingly challenging environment.

“Against this backdrop, monetary policy remains a key source of uncertainty. With the State Bank of Pakistan having already taken a pre-emptive decision to tighten policy, the path of interest rates will hinge on evolving developments in the Middle East.”

Delays in publishing GDP data often hinder policymakers and investors from making timely decisions. While GDP remains the primary gauge of economic health, its lag reduces its effectiveness for real-time analysis. In contrast, the Purchasing Managers’ Index (PMI) serves as a leading indicator, offering more immediate insights into economic activity and improving cross-country comparability.

Copyright Business Recorder, 2026