Teetering industrial output

Large scale manufacturing continues contracting, with an 11.6% decrease recorded by the government in February, and widespread layoffs, even in export-oriented sectors. Large scale manufacturing is down by over 5.5% since the start of the current fiscal year last July. The news is extremely concerning because it is going to be impossible to isolate or quickly reverse the impact of what is now six consecutive months of contraction. In fact, there is near certainty that contraction will continue at least till the end of the fiscal year, as the impact of discontinuing energy subsidies becomes more pronounced. The all-important textile sector shrank by almost 20% year-on-year in February, while pharmaceuticals and fertiliser were down by over 25% each. Automobile manufacturing was the worst-performer, down 64%.

Economic growth is expected to flatline, with all major international analysts regularly downgrading growth estimates, which are currently between 0.4% and 0.6% and could fall further as the struggles of key sectors continue cross-contaminating the rest of the economy. More pessimistic analysts are already suggesting that negative growth could be recorded, especially if the country ends up defaulting, which remains a looming threat despite recent announcements of inflows from friendly countries. Making things worse is that analysts do not even see default as a solution, because of the confluence of several factors, including the lenders’ mistrust of economic managers in the PDM and PTI governments, while the precarious state of several industries means that default or not, companies including major employers are at risk of going bankrupt, which would prolong the economic disarray.

Meanwhile, the limitations on the government’s ability to help manufacturing are becoming ever more obvious. Even the most laudable efforts, such as a recent tax break to help indigenise the production of solar and wind energy equipment, can expect roadblocks as exemptions could run afoul of lenders’ belt-tightening conditions.

Published in The Express Tribune, April 21^st, 2023.

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