LSM sector grows 6.5%

ISLAMABAD: The manufacturing sector registered a strong recovery during 2025-26, as the Large Scale Manufacturing (LSM) sector witnessed a growth of 6.5 percent, a sharp turnaround from the –0.69 percent contraction last year, revealed the Economic Survey 2025-26 released here on Thursday.

According to the Economic Survey, notable growth was observed in food (9.77 percent), tobacco (11.70 percent), petroleum products (10.92 percent), rubber products (14.26 percent), electrical equipment (11.87 percent), automobiles (61.66 percent), transport equipment (39.93 percent), furniture (20.45 percent), and other manufacturing (football, 23.06 percent).

However, pharmaceuticals (–5.14 percent) and machinery & equipment (–8.72 percent) recorded negative growth.

READ MORE: July-March 2025-26: LSM records 6.48pc growth YoY

Electricity, gas and water supply contracted by 10.63 percent, reflecting a 24.9 percent decline in subsidies (from Rs 1,190 billion to Rs 893billion), slower output from distribution companies, and a 2.7 percent rise in the electricity deflator.

The construction sector grew by 5.73 percent, down from 8.77 percent last year, supported by higher construction-related expenditure across private, public, and general government sectors.

The rebound in LSM was primarily supported by relative monetary easing, as the policy rate declined substantially to 10.5 percent by December 2025, from its peak of 22 percent in FY 2024, reducing borrowing costs and improving liquidity conditions for businesses.

Although the policy rate was subsequently raised to 11.5 percent at the end of April 2026 in response to emerging geopolitical risks, liquidity conditions during most of FY 2026 remained comparatively supportive.

The earlier monetary easing is expected to continue supporting industrial activity in the coming months. This improvement in financial conditions was also reflected in credit flows to industry, where lending to high-weighted manufacturing sectors expanded during July-March FY 2026, with either working capital or fixed investment financing showing an upward trend.

The increase in working capital financing supported short-term production needs amid improving liquidity, while the rise in fixed investment lending indicates a gradual revival in capacity expansion.

Within manufacturing, credit growth was broad-based, with notable contributions from food products, textiles, wearing apparel, non-metallic mineral products, and motor vehicles.

In addition, tariff rationalization measures introduced under the National Tariff Policy supported industrial activity by facilitating easier access to imported raw materials, intermediate goods, and industrial machinery at relatively lower costs, thereby improving competitiveness and production efficiency.

The improved performance also reflects easing inflationary pressures, a stable exchange rate, better foreign exchange availability, and a gradual recovery in domestic demand.

Improved availability of imported inputs and reduced supply-side disruptions enabled industries to operate at relatively higher capacity utilization levels compared to previous years.

On a year-on-year (YoY) basis, LSM grew by11.1 percent in March 2026, compared to a contraction of 2.4 percent in the same month last year.

Meanwhile, on a month-on-month (MoM) basis, LSM declined by 5.2 percent in March 2026, compared to an 8.8 percent decline in February 2026.

Out of 22 industrial groups, 16 recorded positive growth during July-March FY 2026, with the main contribution from Food, Wearing Apparel, Automobile, and Coke & Petroleum products.

The food group recorded a strong growth of 9.8 percent during July-March FY 2026 against the contraction of 3.2 percent last year. Notable growth of 31.0 percent was observed in the production of sugar, bakery products, and chocolate and sugar confectionery, supported by better crop harvests, thus contributing to the overall growth of the food group.

Wheat and rice milling and cooking oil also remained positive with 1.4 percent and 1.2 percent growth in production during the reviewed period. In contrast, tea blended, vegetable ghee, and starch & its products observed contraction of 10.0percent, 3.0 percent, and 0.02 percent, respectively.

Meanwhile, the beverages sector posted a growth of 7.7 percent, driven by strong performance in juices, syrups & squashes.

The textile sector growth remained moderate at0.7 percent during July-March FY 2026, compared to a growth of 2.5 percent in the same period last year.

Growth in yarn (1.8 percent), cloth (0.2 percent), woolen & worsted cloth(32.4 percent), and woolen blankets (7.8 percent)were the key contributors to the sector’s performance.

Moreover, the increasing demand for fixed investment borrowing, along with an increase in textile machinery imports (20.9 percent), signals the industry’s intent to expand and modernize operations, reinforcing positive growth prospects in the coming months.

However, challenges persist in the jute segment, where output of jute goods declined sharply by 35.3 percent due to continued operational inefficiencies. The wearing apparel sector sustained its growth momentum with 6.6 percent growth during July-March FY 2026, against 7.6 percent in the same period last year.

The continued expansion reflects the strengthening position of the ready made garment industry, driven by improved competitiveness and rising demand in both domestic and international markets. This is further evidenced by a 5.9 percent increase in export quantity and a 3.8 percent rise in export values during July-March FY 2026. Coke and Petroleum products posted a strong growth of 10.9 percent in July-March FY 2026, against 4.9 percent last year.

The main contributors to this performance were high-weighted products such as high-speed diesel (18.1 percent), motor spirit (14.5 percent), diesel oil (309.6 percent), jet fuel oil (7.5 percent), and petroleum products n.o.s. (53.1 percent), reflecting increased demand from the transport, industrial, and power generation sectors.

The automobile sector maintained its growth momentum, recording a growth of 61.7 percent during July-March FY 2026, against the growth of 40.0 percent in the same period last year. This robust performance reflects improved macroeconomic fundamentals, including declining inflation, exchange rate stability, and alower policy rate, which collectively reduced borrowing costs and restored consumer andinvestor confidence.

Other transport equipment also performed well with 39.9 percent growth during the period under review.

Tobacco, paper & board, and computer, electronics & optical products remained positivewith 11.7 percent, 0.1 percent, and 1.2 percent,respectively. Although their weights in the manufacturing index are relatively small, their positive contributions reflect improving industrial activity in these segments.

The pharmaceuticals sector contracted by 5.1 percent during July-March FY 2026, comparedto a 2.3 percent increase in the same period lastyear. This deceleration reflects a more subduedperformance in liquids/syrups, injections, andcapsules, while galenical, ointments, and tablets witnessed the growth of 100 percent, 6.5 percent,and 0.9 percent, respectively.

The sectorcollectively contributed a negative 0.31 percentage points to cumulative LSM growth.

The chemicals sector contracted by 1.4 percent during July-March FY 2026, against thecontraction of 5.5 percent last year. Within this group, chemical products declined by 2.2 percent, driven by reduced output in industrial chemicals and basic materials, while fertilizer production declined marginally by 1.0 percent.

The non-metallic mineral products grew by 8.2percent during July-March FY 2026, against a 10.5 percent contraction in the same period lastyear.

The expansion was largely driven by risingdemand from construction-related activities, reflected in a 9.1 percent increase in cement production. Growth in electrical equipment by 11.9 percent further reinforced the improving momentum in construction and allied industrial activities.

The iron and steel sector continued to underperform, recording a contraction of 6.3percent during the period under review. However, imports of iron and steel increased by 5.5 percent in value terms and 10.5 percent in quantity terms during the period under review,indicating a shift toward imported products tomeet domestic demand.

Other manufacturing (football) recorded substantial growth of 23.1 percent during July March FY 2026, supported by strong external demand for footballs ahead of the FIFA World Cup 2026, reinforcing Pakistan’s strong position in the international sports goods market. Furniture production also turned positive with 20.5 percent growth after a sharp contraction of 61.1 percent last year.

Copyright Business Recorder, 2026