Karachi, May 16, 2023 (PPI-OT): Mar-2023: Stalled industrial activity takes LSM growth to 3-year low

Large Scale Manufacturing (LSM) growth for Mar-2023 came in at a 3-year low at -25% YoY, over slower economic activity and stricter import conditions. This has taken 9MFY23 growth to -8% YoY.

The last time Pakistan witnessed a negative YoY growth in LSM was during the pandemic when plant and machinery of various segments shut for a brief time over COVID protocols.

A sharp decline in LSM trend is bound to impact GDP growth as the said segment contributes ~10% to GDP. Our estimates suggest -9% YoY LSM growth for FY23, taking GDP growth to 1% YoY, where we do not rule out and even sharper decline in LSM growth for the year.

Mar-2023 LSM growth clocks in at 3-year low at -25% YoY

Large Scale Manufacturing (LSM) growth for Mar-2023 came in at a 3-year low at -25% YoY, taking 9MFY23 growth to -8% YoY. As per the data, limited growth during the month was observed across the board. The larger contributors were Textiles, Autos and Food segments. Similar segments were also key contributors to the decline in the cumulative period for 9MFY23.

While some factor of a steep decline was a high base set in Mar-2022, the major reason has been stricter import conditions and higher taxes over luxury items discouraging consumption. These factors were compounded with higher energy costs and sharp PKR depreciation, leading to inflation-led demand suppression, contributing to decline in economic activity. This is the 9th consecutive decline reported in LSM on a YoY basis, taking cumulative 9MFY23 LSM decline to 8% YoY.

The last time Pakistan witnessed a negative YoY growth in LSM was during the pandemic when plant and machinery of various segments shut for a brief time over COVID protocols, compounding to already faced macro challenges. During that time, LSM growth on a YoY basis remained negative during Sep-2019 to Aug-2020 (barring Dec-2019).

FY23E GDP growth probable to fall below 1% YoY

While consolidation measures, energy shortages in certain segments and scarcity of imported raw materials continue to be key challenges to the LSM segment, we believe higher cost of productions post increase in energy tariffs, higher dollar against the PKR and high interest rate environment would continue the pressure in the coming months. A sharp decline in LSM trend is bound to impact GDP growth as the said segment contributes ~10% to GDP. Our estimates suggest -9% YoY LSM growth for FY23, taking GDP growth to 1% YoY. It would not be surprising if LSM posted maybe even low double digits decline for the year, where taking FY23E LSM growth to -12% YoY would further decline our GDP growth estimates to 0.77% for the year.