LSMI Output Drops 3.8% YoY: Challenges and Insights
Despite Recovery in Select Sectors, Persistent Challenges Loom
Overview of LSMI Performance
Large-Scale Manufacturing Industries (LSMI) output in Pakistan witnessed a 3.8% year-on-year (YoY) decline in November 2024, reflecting the ongoing challenges plaguing the industrial sector. On a month-on-month (MoM) basis, the output decreased by 1.2%, signaling a sluggish recovery trajectory amidst high energy costs and weak consumer demand.
According to data from the Pakistan Bureau of Statistics (PBS), several sectors, including furniture (-53.3%), coke and petroleum (-16.2%), and other manufacturing (-13.3%), contributed significantly to this contraction. For the first five months of FY25, LSMI cumulatively declined by 1.3% YoY, with 11 out of 22 sectors reporting negative growth.
Sectoral Insights: A Mixed Performance
Textile Sector
The textile sector showed mixed results in November 2024:
- YoY Increase: A 1% YoY increase driven by yarn (+8.75%), cloth (+0.78%), and terry towels (+15.46%) fueled by robust export demand.
- MoM Decline: A 1.53% MoM decrease attributed to reduced production of terry towels (-7.38%), woollen and carpet yarn (-3.2%), and woollen blankets (-20.49%).
- Export Growth: Textile exports rose 10% YoY in the first half of FY25, reaching $9.09 billion compared to $8.29 billion in the same period last year.
Automobile Sector
The automobile sector exhibited significant YoY growth, though MoM performance showed declines:
- YoY Growth: Passenger cars, jeeps, and LCVs increased production by 76%, 2.5x, and 2x, respectively, due to eased CKD import restrictions and stable production costs.
- MoM Decline: A 7% MoM drop in production, driven by reductions in jeeps (-6%) and LCVs (-5%).
Food and Cement Sectors
- Food Sector: Recorded a 15% MoM increase in production, primarily driven by bakery products, vegetable ghee, and milling of wheat and rice.
- Cement Sector: Declined by 5% MoM to approximately 3.4 million tonnes in November 2024 due to reduced construction activities and higher federal excise duties.
Petroleum Sector
- MoM Growth: Petroleum production rose 17% MoM in November 2024, led by naphtha (+69%) and lubricating oils (+34%).
- YoY Decline: Production dropped 2.4% YoY during the first five months of FY25 due to lower demand.
Root Causes of LSMI Decline
High Energy Costs
Industrial activity has been dampened by escalating energy costs, making production unsustainable for several industries.
Weak Consumer Demand
Persistent inflation and limited purchasing power have restricted consumer spending, affecting industries like furniture and non-metallic minerals.
Policy-Driven Constraints
Excessive taxation and fluctuating tariffs have discouraged industrial investments, particularly in sectors such as cement and manufacturing.
Recovery and Future Outlook
Improving Macroeconomic Indicators
Analysts suggest that easing macroeconomic pressures, such as anticipated interest rate cuts to 12% by FY25’s end, could aid LSMI recovery.
Sectoral Growth Projections
- Textile Exports: Expected to sustain growth due to robust international demand.
- Petroleum and Automobiles: Likely to recover further with improved consumer demand and reduced production costs.
Policy Recommendations
- Tax Reforms: Reducing federal excise duties to enhance industrial profitability.
- Energy Subsidies: Supporting energy-intensive sectors with subsidized tariffs to boost productivity.
- Private Sector Credit: Increasing credit access to facilitate sectoral growth and investments.
FAQs About LSMI Performance
1. What caused the YoY decline in LSMI output?
The decline is primarily due to high energy costs, weak consumer demand, and reduced production in key sectors like furniture, coke, and petroleum.
2. Which sectors showed the most significant growth?
Sectors like automobiles (+89%), transport equipment (+43%), and tobacco (+23%) experienced notable growth due to recovering demand and stable production costs.
3. How has the textile sector performed?
The textile sector showed a 1% YoY growth in November 2024, with robust export performance (+10% in 1HFY25), but faced MoM production declines in select subcategories.
4. What is the outlook for LSMI recovery?
Recovery is expected to be gradual, supported by easing macroeconomic pressures, improved aggregate demand, and sector-specific policy interventions.
5. What role does government policy play in LSMI performance?
Government policies, including tax reforms, energy subsidies, and credit facilitation, play a crucial role in enabling industrial recovery and growth.
