ISLAMABAD-Large-Scale Manufacturing (LSM) experienced a significant contraction of 10.26 percent in the previous fiscal year (FY23), indicating slowdown in economic activities in the country amid higher cost of production and uncertain political and economic situation.
According to data released by the Pakistan Bureau of Statistics (PBS) here, the LSMI index went down to 114.83 points in FY2023 as against 127.96 in the same month of the last year, showing a decline of 10.26 percent. On a month-on-month basis (MoM), the industry growth declined by 14.26 percent during the month of June 2023.
The massive decline in LSM growth indicates that economic activities have slowed in the country amid higher cost of production and uncertain political and economic situation. The export-based manufacturers have already hinted at a decline in their production due to higher costs of energy and other inputs mainly because of the discontinuation of subsidised electricity. The slowdown in industrial output mainly contributed to the textile and clothing industries because exports from the sector posted double-digit declines. The decline in the industrial sector would also dent the overall GDP growth of the country. The international financial institutions have already predicted lower economic growth of Pakistan.
The consequences of this downturn in large industries are evident in the form of a significant number of job losses. The reduction in production capacity has led to an unfortunate situation where many individuals were rendered jobless. The PBS data showed that only four sectors have recorded positive growth while remaining all sectors posted negative growth. The major sectors, which showed positive growth included clothing (27.16 percent), leather products (1.29 percent), furniture (35.51 percent) and other manufacturing (football) 28.99 percent in FY23. The main contributors towards overall negative growth were food 6.9 percent, beverages 6.43 percent, tobacco 28.36 percent, textile 18.68 percent, wood products 59.81 percent, paper & board 8.66 percent, coke & petroleum products 13.39 percent, chemicals 3.99 percent, pharmaceuticals 28.85 percent, rubber products 4.97 percent and automobile 49.99 percent in the period under review.
The ministry of finance has recently noted that the LSM cycle usually follows the cyclical movements in the main trading partners, but since it is focussed on the main industrial sectors and not on total GDP, it is somewhat more volatile than the cyclical component of GDP in Pakistan’s main export markets. The upward movement of the CLI in the main export markets is indicating the strength of the signal that economies are going towards the revival phase although still below the potential except China who successfully entered into the phase of expansion. Following the CLI, the cyclical pattern of LSM seems to follow the cyclical pattern in the main export markets in the month of May. It is expected to further improve on a MoM basis, however, on a YoY basis it is expected to remain significantly negative in June 2023 due to the high base effect.