LSM contracts 1.71% as economic slowdown concerns grow
Tight monetary policy, rupee depreciation increase cost of production for big industries
Tight monetary policy, rupee depreciation increase cost of production for big industries. PHOTO: FILE
ISLAMABAD:
Large-scale manufacturing (LSM) industries contracted 1.7% in first quarter of the current fiscal year due to negative growth in almost all major industries, fuelling concerns about a slowdown in economic activities due to tight monetary and fiscal policies.
LSM output decreased 1.71% in the July-September period of fiscal year 2018-19 as compared to the corresponding period of previous year, reported the Pakistan Bureau of Statistics (PBS) on Friday.
Since March 2018, the large-scale industries have been facing a turbulent time, which coincided with the tightening of monetary policy and massive depreciation of the rupee. Both these factors have increased the cost of production for big industries.
The LSM contributes nearly 11% to the total national output and dominates the overall industrial sector, accounting for 80% of the sector, according to the Economic Survey of Pakistan.
Almost all major industries either recorded a nominal growth or faced contraction, according to data released by the national statistics agency.
Large industries grow just 0.5% as many sectors slow down
The growth slowdown in large-scale manufacturing is a source of grave concern, which points towards a slowdown in economic activities in the formal sector of the economy.
The contraction in LSM growth will also slightly affect the gross domestic product (GDP) growth at a time when the International Monetary Fund (IMF) has projected a growth rate of less than 4% for FY19.
The poor performance of the LSM sector underscores the importance of pushing ahead with reforms to strengthen small and medium enterprises and export industries in order to achieve a broad-based medium-term growth.
The data collected by the Oil Companies Advisory Committee showed that 11 types of industries had a slight fall in growth in the first quarter.
The Ministry of Industries, which monitors 15 industries, reported a 0.4% decline in growth. Similarly, the provincial bureaus reported about 1% contraction in 11 industries.
In September 2018 alone, the LSM sector rebounded slightly and registered a growth of 1.83%.
In terms of commodities, only five items exhibited growth in their production in the first quarter of the current fiscal year.
Rate hike, economic slowdown likely to hit bank profits
Electronic goods showed 7.8% growth in July-September FY19. The manufacturing of leather products expanded 1.5%, paper and board production rose 4.2%, engineering products 6.12% and rubber products 5% in the quarter.
Former special assistant to the prime minister on revenue Haroon Akhtar Khan believes that the government's "harassment campaign" had also affected business sentiments. "The government's actions have affected new investment in the country," he said.
The industries that are producing 10 major products recorded a dip in their manufacturing in the first quarter. The textile sector witnessed a slight contraction whereas the production of food, beverages and tobacco went down 4.2%, coke and petroleum 5.4%, pharmaceuticals 3.7% and chemicals 1.8%.
The manufacturing of non-metallic mineral products decreased 1.5% in the first quarter, automobile sector saw a reduction of nearly 1.5%, iron and steel products nearly 3%, fertilisers around 5% and wood products over 50%.
The results also highlight the challenges Pakistan may have to face to sustain a decent economic growth and produce exportable surplus. Pakistan has vowed to double its exports to China, which now seems quite challenging.
Although the talks between Pakistan and the IMF have failed for the time being, any bailout arrangement later will have serious implications for industrial growth. The IMF is demanding that Pakistan raise the key discount rate to double digits, let the rupee depreciate further and impose new taxes.
All this will hurt future expansion plans besides increasing the cost of doing business for the industrial units. Foreign investors have already withheld their future expansion plans until the government comes up with clear economic policies.
Large-scale manufacturing (LSM) industries contracted 1.7% in first quarter of the current fiscal year due to negative growth in almost all major industries, fuelling concerns about a slowdown in economic activities due to tight monetary and fiscal policies.
LSM output decreased 1.71% in the July-September period of fiscal year 2018-19 as compared to the corresponding period of previous year, reported the Pakistan Bureau of Statistics (PBS) on Friday.
Since March 2018, the large-scale industries have been facing a turbulent time, which coincided with the tightening of monetary policy and massive depreciation of the rupee. Both these factors have increased the cost of production for big industries.
The LSM contributes nearly 11% to the total national output and dominates the overall industrial sector, accounting for 80% of the sector, according to the Economic Survey of Pakistan.
Almost all major industries either recorded a nominal growth or faced contraction, according to data released by the national statistics agency.
Large industries grow just 0.5% as many sectors slow down
The growth slowdown in large-scale manufacturing is a source of grave concern, which points towards a slowdown in economic activities in the formal sector of the economy.
The contraction in LSM growth will also slightly affect the gross domestic product (GDP) growth at a time when the International Monetary Fund (IMF) has projected a growth rate of less than 4% for FY19.
The poor performance of the LSM sector underscores the importance of pushing ahead with reforms to strengthen small and medium enterprises and export industries in order to achieve a broad-based medium-term growth.
The data collected by the Oil Companies Advisory Committee showed that 11 types of industries had a slight fall in growth in the first quarter.
The Ministry of Industries, which monitors 15 industries, reported a 0.4% decline in growth. Similarly, the provincial bureaus reported about 1% contraction in 11 industries.
In September 2018 alone, the LSM sector rebounded slightly and registered a growth of 1.83%.
In terms of commodities, only five items exhibited growth in their production in the first quarter of the current fiscal year.
Rate hike, economic slowdown likely to hit bank profits
Electronic goods showed 7.8% growth in July-September FY19. The manufacturing of leather products expanded 1.5%, paper and board production rose 4.2%, engineering products 6.12% and rubber products 5% in the quarter.
Former special assistant to the prime minister on revenue Haroon Akhtar Khan believes that the government's "harassment campaign" had also affected business sentiments. "The government's actions have affected new investment in the country," he said.
The industries that are producing 10 major products recorded a dip in their manufacturing in the first quarter. The textile sector witnessed a slight contraction whereas the production of food, beverages and tobacco went down 4.2%, coke and petroleum 5.4%, pharmaceuticals 3.7% and chemicals 1.8%.
The manufacturing of non-metallic mineral products decreased 1.5% in the first quarter, automobile sector saw a reduction of nearly 1.5%, iron and steel products nearly 3%, fertilisers around 5% and wood products over 50%.
The results also highlight the challenges Pakistan may have to face to sustain a decent economic growth and produce exportable surplus. Pakistan has vowed to double its exports to China, which now seems quite challenging.
Although the talks between Pakistan and the IMF have failed for the time being, any bailout arrangement later will have serious implications for industrial growth. The IMF is demanding that Pakistan raise the key discount rate to double digits, let the rupee depreciate further and impose new taxes.
All this will hurt future expansion plans besides increasing the cost of doing business for the industrial units. Foreign investors have already withheld their future expansion plans until the government comes up with clear economic policies.