LSM posts 5.5 percent growth in July-Dec

KARACHI: Large scale manufacturing sector (LSM) posted 5.5 percent growth during the first half of the current fiscal year of 2017/18, official data showed on Saturday, but analysts see potential interest rate spike as a challenge to the industrial growth outlook.

In December 2017, LSM decreased 1.4 percent as compared to the same month a year earlier, Pakistan Bureau of Statistics (PBS) data showed. LSM, however, sharply increased 14.2 percent in December over November.

The central bank swore off its two-year old soft monetary stance by raising the benchmark key policy rate to six percent to tame inflation. The interest rate remained at the 5.75 percent level since May 2016. Next two-month monetary policy is expected in March.

Analysts saw a bad omen in deteriorating current account position and its indirect trigger to interest rate upward revision. The current account deficit widened to $7.4 billion during the first half of the current fiscal year, up 1.6 times over the corresponding period a year earlier.

“External account pressure needs to be controlled, otherwise currency will fall sharply and interest rates will rise, thereby affecting LSM growth in future,” Mohammed Sohail, chief executive officer at Topline Securities said.

Government set annual LSM growth target at 6.3 percent. The sector accounts for 80 percent of manufacturing sector that has 13.5 percent share in GDP.

In November last year, government raised $2.5 billion from international financial instruments and slapped regulatory duties on non-essential imports to increase foreign reserves. But, it needs to take some additional steps to sustain recovery in exports – up 11 percent in first half – and reduce trade deficit by exploring non-traditional markets and expanding exports basket.

PBS data further showed that all the key sectors grew during the July-December period. Coke and petroleum production rose 8.14 percent, followed by pharmaceuticals (3.63pc), non-metallic mineral products (10.23pc), automobiles (21.86pc), iron and steel products (37.13pc), electronics (50.46pc), paper and paper board (8.84pc), engineering products (4.2pc) and rubber products (5.92pc).

In July-December, the sectors that recorded fall in production included food, beverages and tobacco (0.27pc), chemicals (0.4pc), fertilisers (9.84pc), leather products (5.93pc) and wood products (19.22pc).

All the three data collection authorities registered increase in production during the first half of FY2018. Provincial bureau of statistics, counting production of 65 products, recorded 1.57 percent growth in July-December.

PBS, in a statement, said delay in sugarcane crushing took a toll on LSM growth during the period under review. “The industrial growth in the last two months decreased due to delay of cane crushing particularly in Sindh and Khyber Pakhtunkhwa. The production of sugar decreased 37.34 percent as compared to the same period of last year.”

Ministry of industries, measuring output trend of 36 items, recorded 3.45 percent increase in production in the July-December period, while Oil Companies Advisory Council (OCAC), logging outputs of 11 oil and petroleum products, measured 0.53 percent rise in output.

In December, alone provincial bureau of statistics recorded positive growth of 0.67 percent; otherwise both OCAC and ministry of industries witnessed decrease of 0.61 percent and 1.47 percent, respectively.