Karachi: The HBL Pakistan Manufacturing Purchasing Managers’ Index (PMI) fell to an eight-month low of 51.1 in May, down from 51.9 in April, highlighting a slowdown in business activity amid geopolitical unrest and supply chain disruptions. Analysts have pointed to road closures and raw material shortages as key factors contributing to this decline.

The HBL S and P Manufacturing PMI is a critical economic indicator, offering timely insights into business conditions. Unlike the traditional GDP figures, which are published quarterly, the PMI provides real-time economic data and reflects a stronger correlation with equity markets. The exclusion of public sector activities is a significant reason why the PMI survey's global output index aligns more closely with equities.

Humaira Qamar, Head of Equities and Research at HBL, noted that the moderation in business activity was primarily driven by a contraction in new orders. "Geopolitical unrest and logistical disruptions have led to a decline in export orders for the second consecutive month," she explained. While output saw expansion, it was largely due to the completion of existing orders.

Despite these challenges, the manufacturing sector's outlook remains positive. The survey indicates robust business confidence in production growth over the next year, buoyed by expectations of rising demand.

Humaira added that although interest rates are at their lowest in three years, the government's fiscal policies continue to restrict growth. Preliminary estimates suggest GDP will grow at 2.7% in FY25, a slight increase from last year's 2.5%.

The upcoming Federal budget, slated for release on June 10, will be coordinated with the International Monetary Fund (IMF). The government is expected to maintain strong consolidation efforts, aiming for a primary budget surplus of 1.6% of GDP. Humaira mentioned that the Federal Board of Revenue's tax revenues are projected to increase by 16%, surpassing nominal GDP growth, which suggests limited potential for tax relief.

To ensure fiscal discipline and mitigate potential tax shortfalls, the government is likely to enhance non-tax revenues and tighten development expenditures. However, defense spending may remain unaffected, given the ongoing geopolitical tensions.