Manufacturing slows as LSM falters for third year

ISLAMABAD: Pakistan’s manufacturing sector growth sharply slowed to 1.3 per cent in FY2025, down from 3.0 per cent last year, as persistent structural bottlenecks and soaring input costs dragged down industrial output. The Large-Scale Manufacturing (LSM) sector contracted by 1.5 per cent, marking its third consecutive year of negative growth despite monetary and fiscal relief.

The manufacturing and mining sectors remain critical to Pakistan’s industrial base, together contributing 13.2pc to the country’s gross domestic product. Within manufacturing, large-scale manufacturing plays a dominant role, accounting for 67.5pc of the sector and 8pc of GDP. It is followed by small-scale manufacturing and slaughtering,which contribute 2.4pc and 1.4pc to GDP, respectively.

While having over two-third share in manufacturing, the slowdown in LSM, offset solid gains in small-scale manufacturing (up 8.8pc) and slaughtering (up 6.3pc). Meanwhile, mining and quarrying shrank 3.4pc, a slight improvement from last year’s 4.0pc dip, yet still highlighting sectoral vulnerabilities.

The July-March period saw LSM contract 1.47pc, with high costs and tax burdens dampening output despite an 850 bps cut in interest rates and power tariff relief. Nearly half of the LSM index (48.8pc) recorded growth, led by textiles, autos, apparel, tobacco, and transport equipment, but heavy losses in food, chemicals, steel, and electricals pulled the index negative.

Auto production surged 40pc, reversing last year’s collapse, thanks to macroeconomic stability and the launch of 31 new models, including EVs. Apparel grew 7.6pc amid rising global demand and shifting export orders from Bangladesh. However, sugar, woolen, and jute products faced steep declines, driven by crop challenges, policy uncertainty, and inefficiencies.

The EV sector gained traction, with 13 new manufacturers licensed and production reaching 32,923 units. Chinese EV giant BYD plans a plant in Karachi by 2026. Meanwhile, chemical and construction-linked industries remained under strain, with falling fertilizer output, weak cement demand, and declining transformer and battery production.