Moaaz Manzoor

The large-scale manufacturing (LSM) sector continues to contract despite policy interventions, with weak investment, industrial stagnation, and external economic pressures posing significant challenges to the recovery, reports WealthPK.

The December 2024 LSM reading showed a 3.7 percent year-on-year decline, dragging cumulative growth for 1HFY25 down to negative 1.87 percent — the lowest in 14 months. The contraction comes amid a sluggish business environment, where even sectors that had previously shown resilience, such as petroleum and food, are now witnessing a downturn.

Speaking with WealthPK, senior economist from S&P Global Market Intelligence Ahmad Mobeen noted that Pakistan’s economic trajectory remains fragile, with LSM contracting 1.9% YoY in H1 FY25. Key sectors such as textiles, food, chemicals, and machinery are struggling, though a gradual recovery is expected, with industrial production projected to grow by 5.2% in 2025.

Inflation hit a decade-low of 1.5% in February, largely due to the base effects, but is expected to rise due to Ramadan and Eid-driven food demand, averaging 6.1% in 2025. Despite external headwinds and global tariff uncertainties, the GDP growth is forecast at 2.9% for 2025 — falling short of the National Economic Committee’s 3.6% target. A slow recovery to 3.7% in 2026 and 4.3% over 2026-29 is projected, but industrial stagnation and weak investment remain key risks.

Dr. Nasir Iqbal, Associate Professor and Registrar at the Pakistan Institute of Development Economics (PIDE), highlighted that the industrial growth remains sluggish despite the government's initiatives to foster a favorable business climate. Although the policy rate dropped from 22%, investment remained stagnant due to the prevailing economic uncertainty and intensified efforts to formalize various sectors. The investor confidence is still low amid increased government intervention.

At the same time, the industrial sector faces an added challenge from the agriculture sector — despite intermittent snowfall — a prolonged drought threatens agricultural productivity, potentially exacerbating industrial disruptions. Dr. Iqbal noted that while the government refrains from introducing a mini-budget and is considering tax cuts for the real estate sector, these steps alone are insufficient to stimulate industrial expansion.

Major industries such as steel, cement, and fertilizer, which employ a significant workforce, continue to struggle. The recurring contractions in LSM highlight the deep-rooted structural challenges plaguing Pakistan’s industrial sector. While monetary easing and policy interventions have provided some breathing space, they have yet to translate into a tangible growth.

The industrial recovery will require a multi-pronged approach, addressing the supply-side constraints, boosting investor confidence, and mitigating external vulnerabilities. Without a comprehensive and sustained reform strategy, Pakistan’s manufacturing sector risks prolonged stagnation, which could further dampen broader economic recovery.

Credit: INP-WealthPk