Last month’s coverage of Pakistan’s Large-Scale Manufacturing (LSM) reported that the worst seemed to be over for large scale manufacturing. Latest data release by Pakistan Bureau of Statistics confirms that view.

According to PBS data released for June 2020, most LSM index heavy weight items - cotton yarn and cloth, cigarettes, iron & steel, cement, POL products and automotive sector that have a combined weight of about 37 percent – reported significant year-on-year recovery in June. While in some cases (such as cotton yarn and cloth) June 2020 production was still lower than last year, in other cases (such as cigarettes, motorcycles and cement) it reported positive growth over last year.

The LSM index for June landed at 119.10 points as against last month’s forecast of 110 points which was construed to be optimistic given Covid-19 conditions. However, some items such as cigarettes boasted an unprecedented year-on-year growth of 334 percent in June alone, which helped pump up overall LSM values. As a result of higher-than-expected growth in select sectors, full-year FY20 LSM has contracted by 10.2 percent as against BR Research’s forecast of negative 10.4 percent, and the government’s provisional estimates of negative 7.78 percent. (See LSM: FY20 was clearly worse than govt forecast, July 29, 2020)

While the post-lockdown recovery has been phenomenal, it is early to say if this recovery will continue in FY21. As a matter of record, FY20 wasn’t faring well even before Covid-19 struck Pakistan. The 9MFY20 reported a fall of 5.29 percent. which was the worst nine-month numbers since at least FY11. Yet if Covid-19 struck hard on the economy, a few silver linings have emerged from the eye of the storm.

Interest rates have been slashed at an unprecedented speed, which would have otherwise taken at least 18 months. Low interest rates can be expected to stir up demand in the months to come.

Housing and construction plans have finally been kicked off with some of the taxation issues also sorted out in tandem with the emergence of stories that contribute to positive sentiments. The latter includes the inauguration of a new chapter at Naya Nazimabad by Finance Minister Hafeez Shaikh and the announcement by Waves – an electronic appliances maker – that they would venture into real estate, amid launch of steel business by Naveena Group. Meanwhile, rains that havocked Karachi have forced PPP, PTI and MQM-P to work jointly towards resolving Karachi’s issues, which could be a boon for the country’s economy as well.

Add to these the likelihood that the low base affect will also kick in, expected to be sharply visible in the second half of FY21, and there are enough reasons to believe that the worst may be over for LSM.