By Farooq Awan

Pakistan's manufacturing sector showed signs of broad-based recovery during FY2025-26, with growth recorded across 16 major industrial groups, supported by improving macroeconomic stability, easing inflationary pressures and stronger domestic demand.

According to the Finance Division's Monthly Economic Update & Outlook (July 2026), the Large-Scale Manufacturing (LSM) sector contracted by 1.5% during July-April FY2025-26, but the pace of decline moderated significantly compared with earlier months as production improved across a wide range of industries.

The report states that 16 industrial groups recorded positive growth, led by wearing apparel, textiles, leather products, automobiles, pharmaceuticals, fabricated metal products, electrical equipment, furniture and tobacco. The improvement reflects a gradual revival in manufacturing activity following the macroeconomic stabilisation achieved during the fiscal year.

According to the document, several key industries also posted encouraging production gains. Automobile manufacturing continued to recover, supported by stronger demand and improved availability of imported inputs. Growth was also observed in textile-related industries, while pharmaceutical production continued to rise during the review period.

The Finance Division notes that the recovery in manufacturing coincided with a significant improvement in Pakistan's macroeconomic environment. Inflation eased considerably during FY2025-26, the policy rate declined, foreign exchange reserves strengthened and fiscal performance improved, creating more favourable conditions for industrial production and business activity.

The report says business confidence has also strengthened amid improving economic indicators. Recent financial sector reforms, expanding access to investment opportunities and improved external sector performance have contributed to a more supportive environment for industrial investment and production.

According to the document, despite the overall improvement, some manufacturing segments continued to face challenges, reflecting uneven recovery across the industrial sector. The Finance Division notes that external uncertainties, energy-related issues and sector-specific constraints continue to affect the pace of growth in certain industries.

Looking ahead, the report expects industrial activity to strengthen further during FY2027 as macroeconomic stability continues to improve. The Finance Division projects that easing financial conditions, stronger domestic demand, improved investor confidence and ongoing structural reforms will support manufacturing growth, although external risks and geopolitical uncertainties remain important challenges for the economy.

Credit: INP-WealthPk