LSM sector records third consecutive monthly decline

KARACHI:

Production in Pakistan’s large-scale manufacturing industries (LSMI) fell by 9.35 percent, marking the third consecutive month of decline in March 2024, according to Pakistan Bureau of Statistics (PBS) data.

The monthly Quantum Index of Manufacturing (QIM) fell to 115.5 in March, compared to 132.4 in December 2023, with significant declines seen in production from sugar, cement and iron and steel products.

However, another set of data from the bureau shows a 2.04 percent increase in output in major industries in March compared to the same month last year. Industries reporting increased production in March include apparel, fertilizers, petroleum products, cotton yarn and cotton cloth.

According to JS Global Research, March marks the fourth consecutive month of year-over-year increases in LSMI production, with output remaining high from December 2023 to March 2024 compared to the same period last year.

The PBS reports an overall negative growth of 0.10% in the large-scale manufacturing sector in July-March 2023-2024 compared to the same period last year. While production has increased in sectors such as food, clothing, coke and petroleum products, chemicals, fertilizers, pharmaceuticals, machinery and equipment and furniture, it has decreased in sectors such as tobacco, textiles, paper and cardboard, non-metallic mineral products, iron and steel products, electrical equipment, automobiles and other transportation equipment.

The LSM sector continues to struggle due to government policies aimed at cooling the previously overheated economy. We recall that high inflation, which reached a multi-decade high of 38% in May 2023, prompted the central bank to raise interest rates by 15 percentage points from September 2021 to June 2023, reaching a record high of 22% . Despite inflation falling to 17.1% in April 2024, the bank kept the rate unchanged from the end of June 2023.

In addition, marked rupee depreciation and low foreign exchange reserves also contributed to the decline in LSM production.

Experts suggest that the revival of LSMs depends on significant reductions in interest rates and an improvement in the availability of foreign reserves.

Published in The Express Tribune, May 16^u2024.

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