LSM sector behaviour exhibits random trajectory in FY2019-20
ISLAMABAD – According to the Pakistan Economic Survey 2019-20, Textile, the item with the heaviest weight, observed moderate growth up till Feb 2020 and witnessed a hefty decline in Mar 2020 due to supply disruptions. Second heavy weight item Food, Beverages and Tobacco witnessed a tremendous growth of 122 per cent in Dec 2019 on account of sugar production. Coke and Petroleum products observed a major slump in Feb 2020, a 33 per cent decline.
Demand and supply bottlenecks have adversely hit the petroleum industry. Automobile, Non-metallic Mineral Products and Electronics have also showed mixed growth. Fertilizers, after a consecutive decline, have started showing some signs of recovery from Feb 2020.
All manufacturing sectors except Fertilizers, have witnessed decline in Mar 2020 in the wake of business closures due to COVID-19 crisis.
Average MoM growth of LSM stood at 0.5 per cent for the first nine months of FY2020. LSM posted 2.11 per cent growth in July 2019 primarily due to 8.9 per cent growth in Non-metallic Mineral Products, Automobile 8.9 per cent, Food Beverages & Tobacco 3.0 per cent and Fertilizer 3.1 per cent.
However, growth dampened to -2.42 per cent in August due to -0.3 per cent fall in Textile, -17.0 fall in Non-metallic Mineral Products, -19.4 per cent in Automobile and 2.3 per cent decline in Iron and Steel.
In September 2019, pace picked up and growth of 2.76 per cent was recorded due to 2.2 per cent increase in Coke & Petroleum Products, 29.8 per cent in Non-metallic Mineral Products and 0.2 per cent in Textile.
A sharp increase of 5.4 per cent was observed in October 2019 on account of 19.7 per cent growth in Non-metallic Mineral Products, Automobile 12.6 per cent and Electronics 20.0 per cent. November 2019 again witnessed a negative growth of -3.81 per cent mainly due to -2.5 per cent decline in Food Beverages & Tobacco, Non-metallic Mineral Products -13.2 per cent, Automobile -20.7 per cent, Fertilizers -3.6 per cent and Electronics -8.8 per cent.
However, a steep increase of 15.27 per cent has been observed in December 2019. This is highly attributed to sugar production which rose sharply owing to favorable weather conditions (which were conducive for extraction of high sucrose content from the raw material), as well as timely start of the crushing season as compared to last year.
Further, jeeps and cars also grew by 20.6 per cent. Impact of the sugar however moderated in January 2020 and growth reached at 7.09 per cent. This can be attributed to 22.5 per cent growth in Food Beverages and Tobacco, Automobile 24.7 per cent and 23.6 per cent Electronics.
February 2020 witnessed a moderate growth of 0.16 per cent on account of growth in Food, Beverages & Tobacco and Non-metallic Mineral Products by 1.2 and 17.2 per cent, respectively. Fertilizers grew by 4.0 per cent. LSM growth nosedived by -21.9 per cent in March 2020 due to closure of business activities in the wake of COVID-19 outbreak.
Textile and Food, Beverages & Tobacco, the main sectors of LSM, dipped by -26.5 and -30.3, respectively. During FY2020, required fiscal and monetary adjustments, such as flexible exchange rate and austerity drive, were adopted to stabilize the economy. Nevertheless, external imbalances were eased to some extent but some short-term repercussions had to be confronted domestically, specifically by industrial sector.
Pak rupee depreciated by 3.9 per cent during Jul-Mar FY2020 which increased the cost structure of industries in general, and particularly for those relying on imported raw materials. Further, policy rate was kept high to contain inflation which on the other hand discouraged investment. Subdued demand further hampered the overall production and performance of the industry.
Certain sector specific issues also contributed to the decline in LSM. Automobile sector alone accounted for major portion of contraction in LSM. Its prices witnessed multiple upward revisions due to PKR depreciation which held the potential buyers refrained from making booking and purchases.
The shift in power generation away from furnace oil has reduced the fuel’s demand and affected the coke & petroleum industry output. Upward adjustment in electricity prices dented domestic steel producers’ margins.