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Tuesday, April 16, 2024

Large-scale manufacturing to lead economy’s recovery

Pakistan's large scale manufacturing sector has shown a rebound that is expected to help the rest of the economy recover

Pakistan’s large scale manufacturing sector has shown positive growth, 5.5%, in this fiscal year.

Despite being lower than pre-coronavirus times, the numbers have shown stability and resilience in the face of the pandemic.

The LSM output increased by 6.66% in October this year.

In separate sectors such as the textile sector, the growth was around 2.4%. In comparison, food and beverages saw an 8.6% increase, petroleum products a negative growth of 1.67%, pharmaceuticals 11.29%, non-metallic mineral products 24.48%, fertilizer 18.5%, and cement 25%.

All indicators showing recovery

The Pakistan Bureau of Statistics’ data shows nine major sectors showed positive growth in the first four months of the current fiscal year. These included the textile, food, beverages and tobacco, petroleum products, pharmaceuticals, chemicals, non-metallic mineral products, fertilizer, paper and board, and rubber products industries.

The economy likely recovered in Q1 of this fiscal year—which began in July 2020—after GDP growth slowed significantly in FY 2020 (July 2019–June 2020) due to lockdown measures imposed at the tail end of the year. In July–September, industrial production rebounded, mainly due to healthier manufacturing activity.

Moreover, average remittance growth surged in the quarter, which should have boosted private spending coupled with easing containment measures. Turning to Q2 (October–December), economic conditions are likely continuing to improve.

Read more: Pakistan’s forex reserves surge as economy makes speedy recovery

In October, merchandise exports expanded modestly year-on-year, while imports continued to contract, leading to a notable trade deficit improvement. However, an uptick in new Covid-19 cases prompted a snap-back of some restrictions in mid-November, which should be weighing on activity somewhat; that said, a full lockdown is unlikely in the coming months.

Large scale manufacturing industry to lead rebound

Six sectors showed declining growth in the first four months of this year compared to last year. These were the automobile, iron and steel, electronic, leather, engineering, and wood sectors.

The government had envisaged a GDP growth rate of 2.1% for the current fiscal year 2020-21 against a contraction of negative 0.4% for the last fiscal year.

Read more: Will the resumption of IMF program harm or help the economy?

The economy should rebound in FY 2021 as the pandemic’s impact gradually fades and domestic demand recovers. Moreover, structural reforms should boost investment, while foreign demand is expected to grow in tandem with the global economic recovery.

However, mounting debt, uncertainty over the virus’s evolution, and geopolitical tensions cloud the outlook. FocusEconomics panelists project growth of 1.5% in FY 2021, which is down 0.1 percentage points from last month’s estimate, and 4.0% in FY 2022.

The Ministry of Finance and its economic advisory wing expects more positive growth with improved industrial growth in the current fiscal year.

GVS News Desk