Pakistan’s LSM Sector: A Fragile Bounce or Structural Breakdown?
The latest data from Pakistan’s Large-Scale Manufacturing (LSM) sector paints a troubling picture: not one of industrial resurgence, but one of slow decay. While May 2025 brought a headline 2.3 percent year-on-year growth — marking the third positive print in this calendar year — the cumulative reality reflects a sector caught in a prolonged downward spiral.
Rather than signaling a comeback, May’s uptick feels more like a dead cat bounce than a sustainable recovery. With output for 10MFY25 contracting by 1.52 percent, the overall trajectory remains firmly negative.
The March Illusion: From Growth to Collapse
One of the most revealing developments comes from the revised March 2025 data, which was initially celebrated for posting 1.78 percent growth. That figure has since been revised down to a shocking 2.78 percent contraction — the worst reading since FY20, excluding the COVID collapse.
The revision primarily stems from a sharp downward adjustment in the food manufacturing index, particularly sugar production. Revised figures show sugar output collapsing to 5.78 million tons for the season — nearly a million tons short of last year. And with May contributing little historically, total seasonal output is expected to be 8–9 percent lower than FY24.
Back in Time: LSM Output Falls to FY17 Levels
While short-term gains offer momentary relief, Pakistan’s LSM index remains 10 percentage points below its FY18 level, and has regressed to output levels last seen in FY17. That means nearly eight years of industrial growth has been wiped out.
On a cumulative basis:
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Output is now lower than FY19,
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Only marginally better than FY21,
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And well below FY22 highs — a peak that now feels more like an aberration than a benchmark.
Nishat Mills Limited (NML) – A Deep Dive into Financial Performance and Strategic Growth (2019–2025)
Diffusion Index: A Mirage of Momentum
On the surface, the diffusion index offers some hope — 12 out of 22 tracked sectors recorded growth. But a deeper look shows that only a few sectors are growing with meaningful momentum.
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Pharmaceuticals and textiles are barely growing, both under 3 percent.
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Readymade garments have lost momentum.
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Autos stand out as the only semi-bright spot, boosted by a low base effect and modest demand recovery.
Industrial Pillars Are Crumbling
The backbone of Pakistan’s industry — cement, steel, white goods, and chemicals — continues to erode. Now, food has joined the list of laggards, largely due to the sugar slump.
Out of the 22 sectors, 10 are still operating below the index level that marked the beginning of the current base year. For some, the climb back might never happen.
This is not cyclical weakness. This is structural decay.
Glimmers of Hope — But Are They Enough?
Amid the gloom, there are a few glimmers:
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The State Bank of Pakistan’s PMI for May hit a 12-month high.
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Capacity utilization in manufacturing stood at 65.7 percent, broadly consistent with the past year.
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The Monetary Policy Committee (MPC) kept interest rates unchanged and hinted at recovery in FY26.
But even here, optimism is thinly spread:
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The MPC avoided naming specific LSM sectors poised for recovery.
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Instead, it cited private sector credit, sentiment indicators, and import flows as signs of revival — indicators that are lagging and often detached from real-time industrial performance.
Policy Signals Are Weak, Structural Problems Run Deep
Even if industrial electricity tariffs come down and credit gets cheaper, these are palliatives — not cures.
Pakistan’s LSM sector isn’t idling; it’s slipping into reverse. The highs of FY22 are now a distant memory, and current policy direction lacks the urgency and focus to revive key subsectors like construction, engineering goods, and agro-processing.
What’s needed is a targeted, industrial revival strategy, including:
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Supply chain reforms to lower input costs,
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Export diversification incentives,
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Modernization grants for decaying industries,
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And coordinated public-private industrial clusters that push productivity.
Conclusion: No Sugar-Coating the Decline
May’s LSM growth figure is no sign of turnaround. It is a statistical blip, not a signal of recovery. As the data shows, Pakistan’s industrial time machine is working — it’s just moving in the wrong direction.
Unless structural inefficiencies are addressed and sector-specific policy interventions are made, Pakistan’s industrial future may look alarmingly like its distant past.
