In July 2023, the Large-Scale Manufacturing Industries (LSMI) experienced a year-on-year contraction of 1% in production, marking the smallest contraction recorded by local industries in nearly a year. Some sectors showed year-on-year recovery in production due to the easing of import restrictions in July 2023 (Pharmaceuticals) and a low base effect resulting from severe floods (oil sales, cement, and fertilizers). However, it’s worth noting that in the previous fiscal year, FY23, LSMI contracted by a substantial 10%.
The textile sector remains a concern for policymakers, as it contracted by a significant 22% year-on-year in July 2023, with Yarn and Cloth recording declines of 30% and 16.5%, respectively. Despite lower cotton prices by 17% year-on-year in local currency, rising borrowing costs (now linked to the policy rate) and an upward revision in utility prices have negatively impacted the textile sector.
Similarly, the automobile sector continued its downward trend, with a decline of 66%, while household-related industries, including furniture and electrical equipment, contracted by 58% and 22%, respectively. These contractions can be attributed to rising prices and a decrease in purchasing power.
On the positive side, sectors that performed well in July 2023 included wearing apparel (up 31% year-on-year), Pharmaceuticals (up 54% year-on-year), and non-metallic mineral products, which mainly include cement and glass production (improved by 35% year-on-year). The fertilizer sector also posted impressive growth of 26.1%, primarily led by nitrogen fertilizers. However, on a month-on-month basis, LSMI output contracted by 3.6%.
Looking ahead, the outlook for industrial output remains fragile and depends on factors such as the State Bank of Pakistan’s import restriction policy, currency fluctuations, changes in the policy rate, and potential increases in energy prices. It is estimated that LSMI will continue to contract in FY24, albeit at a slower pace than in FY23, as production has already declined by 30% compared to the peak levels seen in March 2022 (see graph). Analysts believe that Agriculture Sector will rescue GDP growth this year as Bumper Crop production is expected in FY2023-2024.
| Manufacturing Sector | Weight | July-23 over June-23 | July-23 over July-2022 |
| Wearing Apparel | 6.1% | 30.8% | 4.3% |
| Pharmaceuticals | 5.2% | 54.2% | 2.3% |
| Non Metallic Mineral Products | 5.0% | 35.2% | 1.7% |
| Fertilizers | 3.9% | 26.1% | 1.1% |
| Food | 10.7% | 10.0% | 1.1% |
| Chemicals Products | 6.5% | 5.9% | 0.5% |
| Tobacco | 2.1% | 54.0% | 0.3% |
| Other Manuf. (Football) | 0.3% | 13.3% | 0.1% |
| Rubber Products | 0.2% | 10.2% | 0.0% |
| Machinery and Equipment | 0.4% | 3.9% | 0.0% |
| Wood Products | 0.2% | -4.5% | 0.0% |
| Computer, electronics & Optical products | 0.0% | -32.1% | 0.0% |
| Leather Products | 1.2% | -2.0% | 0.0% |
| Fabricated Metal | 0.4% | -4.6% | 0.0% |
| Other transport Equipment | 0.7% | -19.0% | -0.1% |
| Iron & Steel Products | 3.5% | -2.7% | -0.1% |
| Coke & Petroleum Products | 6.7% | -2.3% | -0.2% |
| Paper & Board | 1.6% | -15.4% | -0.4% |
| Beverages | 3.8% | -6.7% | -0.4% |
| Chemicals | 2.6% | -17.0% | -0.7% |
| Electrical Equipment | 2.1% | -22.4% | -1.0% |
| Furniture | 0.5% | -57.8% | -1.9% |
| Automobiles | 3.1% | -66.1% | -2.6% |
| Textile | 18.2% | -22.0% | -4.7% |
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