LSM output hits 21-month high

KARACHI:

Pakistan’s large-scale manufacturing (LSM) industries reached a 21-month high output, with strong support coming from agriculture, petroleum products, wearing apparel, and pharmaceutical sectors in December 2023, hinting at a gradual turnaround in economic activities in the current fiscal year 2023-24.

The Pakistan Bureau of Statistics (PBS) reported on Thursday that LSM output increased by 3.43%, pushing the quantum index of manufacturing (QIM) to 132.87 in December 2023 compared to 128.37 in the same month of the last year. LSM production grew by 15.69% in December compared to the prior month of November 2023.

Cumulatively, in the first half (Jul-Dec) of FY24, the large-scale manufacturing industries’ growth contrasted 0.39% compared to the same period of the last year.

According to PBS, production in July-December 2023-24 increased in food, beverages, wearing apparel, coke and petroleum products, chemicals, fertilisers, pharmaceuticals, non-metallic mineral products, machinery and equipment, and other manufacturing (football). On the other hand, output decreased in tobacco, textile, iron and steel products, electrical equipment, automobiles, other transport equipment, and furniture during the period under review.

Speaking to The Express Tribune, Arif Habib Limited’s Head of Research, Tahir Abbas, attributed the improvement in LSM output to the government’s strategy to gradually reopen the domestic economy. Earlier, the government had taken harsh measures to cool down the overheated economy, which contracted LSM growth.

To recall, the authorities concerned had jacked up interest rates and controlled imports to manage the then critically low foreign exchange reserves and control multi-decade high inflation reading spiked to 38% in May 2023. State Bank of Pakistan Governor, Jameel Ahmed, said late in January 2024, the volume of imports had increased by $700-800 million in recent months compared to less than $4 billion/ month many months ago, suggesting a gradual reopening of imports in the wake of the improvement in foreign exchange reserves to then a six-month high at $8.3 billion.

Abbas estimated the first-half contraction at 0.39% to turnaround at a positive growth in the range of 2-2.5% in FY24 full-year. He said the food (agriculture) sector would continue to lend its outstanding support to the LSM sector with bumper wheat and sugar crops in the year. Besides, the textile sector – which has posted a contraction of over 2% in the first six months of FY24 – is expected to extend its support to LSM in the second half (Jan-Jun) on expected improvement in its exports, he said.

Read 3.43% growth pushes QIM to 132.87 in Dec 2023 compared to 128.37 in Dec 2022

Along with this, the production from other industries, including wearing apparel, coke and petroleum products, fertilisers, and pharmaceuticals, is also expected to remain supportive towards the betterment in LSM output in FY24 full year. AHL expert Abbas said the industries would manage to give a better output ahead as the central bank expected to cut its benchmark policy rate cumulatively by 3-4 percentage points in the ongoing second half of FY24, providing relatively affordable financing to pick up production and economic growth.

The policy rate (interest rate) standing at a record high at 22% since late June 2023, has hit industrial activities hard, resulting in slightly contrasting economic growth in FY23.

While commenting on the LSM sector in its latest monthly economic outlook of January 2024, the finance ministry said that in Jul-Dec FY2024, the performance of the auto-industry remained subdued due to a massive increase in input prices and tightened auto finance. Car production and sale decreased by 56.9% and 55.5%, respectively, while trucks and buses production and sale decreased by 56.9% and 49.6%. However, tractor production and sale increased by 67.5% and 103.3%

The sale of petroleum products slumped by 15% during Jul-Dec FY2024 to 7.68 million tonnes against 9.03 million tonnes in the same period last year. During Jul-Dec FY2024, total cement sales (domestic and exports) were 23.87 million tonnes, 9.7% higher than 21.76 million tonnes dispatched during the corresponding period last year.

Credit to the private sector

Credit to the private sector improved to a four-month high at Rs8.54 trillion in December 2023, supporting growth trends in the industrial sectors and the overall economy.

The loans to the private sector grew by 3.4% in December compared to November 2023.

Abbas said some industries have continued to borrow expensive financing to run their day-to-day production cycles.

On a year-on-year basis, credit, however, dropped 1.4% to Rs8.54 trillion in December compared to Rs8.66 trillion in the same month of the last year.

 

Published in The Express Tribune, February 16^th, 2024.

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