Karachi, February 18, 2022 (PPI-OT): Remarkable rise in December LSM growth
As per latest PBS data, Large-scale manufacturing (LSM) grew by 6.4% during Dec-21 taking 1HFY22 LSM growth to 7.4% YoY. This remarkable rise in LSM during the first half of the ongoing fiscal year is mainly on back of stronger auto and wearing apparel sectors.
Strong recovery was seen across the board except Fertilizer and Pharmaceutical sectors where notable decline in production was witnessed during 1HFY22.
Apart from secular sector trends, on a broader level we believe the impact of the ongoing consolidation measures will be key to track, as policy makers try to strike a balance between preserving growth and correcting imbalances, while dealing with energy shortages / pricing decisions.
LSM Growth jumps 7.4% YoY in 1HFY22
Large-scale manufacturing (LSM) grew by 6.4% YoY during Dec-21 taking 1HFY22 LSM growth to 7.4% YoY. This remarkable rise in LSM during the first half of the fiscal year is mainly on back of stronger auto and wearing apparel performance. During 1HFY22, food sector posted a growth of 1.3% followed by beverages and tobacco which showed a 4.3% and 50.8% increase in production, respectively.
The sector with the most weight in the index, Textile grew by 2.8% YoY during 1HFY22 similarly Wearing apparels depicted 20.5% YoY growth. While the government continues to work on incentivizing the sector, given its importance for exports, the energy shortages could pose a challenge to continued momentum for the sector.
Other categories which witnessed substantial increase in production during the half year were the ones with significantly lower weight in the LSM index, such as Furniture and Wood products.
Categories which witnessed deterioration during the year were Fertilizer and Pharmaceutical sectors. Fertilizer and Pharmaceutical production showed a 3.8% and 4.9% decline, respectively on a YoY basis. Fertilizer sector slowdown was due to decreased DAP production.
Impact of consolidation measures and energy will be key
Apart from secular sector trends, on a broader level we believe the impact of the ongoing consolidation measures will be key to track, as policy makers try to strike a balance between preserving growth and correcting imbalances, while dealing with energy shortages in certain segments.
In addition to shortages, energy pricing is another key theme to track. With IMF already requiring an increase in tariffs, the recent up-turn in commodity prices, especially oil, will exert further pressure on energy pricing, testing the pricing power of different segments.