LSM stability
Large scale manufacturing (LSM) may finally be recovering, after new data showed that the sector grew by a bit over 1.5% in November. This means that despite the negative growth in October, output grew in three of the four months from August to November, and net growth for this period was also positive, turning around 14 consecutive months of contraction in what was arguably the worst year ever for Pakistani industry. However, some of the factors that helped LSM recover also caused problems in other areas of the economy — the softening of import restrictions allowed industry to access raw materials more easily, but also took a toll on foreign exchange reserves as the balance of payments situation lurked back into familiar deficit territory.
The sectors that drove growth in November are also not the ones generally associated with sustained economic growth. Food, beverages, petroleum products and chemicals are mostly focused on the domestic market and have somewhat inelastic demand. Meanwhile, the auto sector, which can be used to reflect consumer confidence in the economy, crashed by over 66%, and textiles grew by just 0.4%. The only real bright spots were pharmaceuticals, garments and machinery, which all grew significantly and are industries with great potential. Growth in garments and apparel, which tie directly to textiles, also renewed hope that the country could capitalise on the massive international market and shift the focus from textiles to finished apparel, which is more profitable and generates more jobs and foreign exchange.
And while we are looking for bright spots, the otherwise dismal auto industry data showed tractor production was up 60%, as year-on-year demand reportedly doubled. This would suggest that farmers do see potential in investing in new equipment, which may not have a huge positive effect on LSM, but will certainly help the economy in general. Not ideal though, in the long term, relying on agriculture to help turn the economy around is not a terrible proposal, especially given how poorly industry and service-based strategies have worked so far.
Published in The Express Tribune, January 19th, 2024.
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