
LSM: Time machine the wrong way
Yes, May 2025 marked a 2.3 percent year-on-year growth — the third positive monthly print this calendar year — but this is no sign of a turnaround. It's more of a dead cat bounce than a structural recovery.
Cumulatively, LSM contraction has now entered its ninth straight month, with 10MFY25 output down 1.52 percent. The headline figure for March, previously celebrated as a return to growth at 1.78 percent, has been quietly revised down — and how. The revised March figure now shows a contraction of 2.78 percent, marking the lowest reading since the start of the current LSM base, barring the COVID-induced collapse of FY20.
The culprit? A massive downward revision in the food index, led by sugar. March's sugar output was chopped significantly in the revised data, dragging the entire sector down. Seasonal production of sugar now clocks in at 5.78 million tons — nearly a million tons short of last year's haul. And with May historically contributing little to sugar output, the final season numbers are likely to be 8–9 percent below last year.
Despite the recent uptick, the broader reality remains grim. The LSM index for April is barely above readings from the past two years, and still a full 10 percentage points below its FY18 level. In fact, output levels are now back to where they were in FY17 — wiping out nearly eight years of supposed industrial progress. On a cumulative basis, output is even lower than FY19 and only marginally ahead of FY21 — and that's saying something.
To put it bluntly: Pakistan's industrial time machine isn't broken. It's just been set permanently in reverse.
The diffusion index — a measure of how widespread growth is — offers some surface-level hope, with 12 of 22 tracked sectors in the green. But scratch the surface, and the optimism fades. Only a handful of these are growing with any real momentum. The rest are dragging their feet. Pharmaceuticals and textiles are barely growing at under 3 percent. Readymade garments have lost steam since earlier this year. The one relatively bright spot is automobiles, buoyed by a low base and some modest demand recovery.
Meanwhile, the industrial backbone continues to deteriorate. Cement, steel, chemicals, and white goods — once the bellwethers of economic progress — are stuck in the red. Food has now officially joined that club, led by the sugar slump. 10 LSM subsectors are still operating below the index level that marked the beginning of this base year. Some may never climb back.
That's not cyclical weakness. That's structural decay.
To be fair, there are glimmers of hope. The State Bank's Purchasing Managers Index (PMI) for May reached a 12-month high. Capacity utilization across industries is holding steady at 65.7 percent — broadly in line with the last year's average. And while the central bank kept interest rates unchanged in its latest policy meeting, it did signal expectations of recovery led by services and industry in FY26.
But the devil is in the details — or in this case, the omissions. The Monetary Policy Committee avoided naming any specific LSM sectors poised for growth. That's because, apart from autos, the cupboard is nearly bare. Growth in private sector credit, sentiment indicators, and import flows were cited instead. Translation: there's hope, but not a whole lot of substance behind it — at least not yet.
Lower industrial electricity tariffs and cheaper credit might help slow the bleeding. But resurrecting industrial momentum is a different beast altogether. The highs of FY22 aren't just out of reach — they're not even on the horizon.Pakistan's industrial engine isn't revving up. It's idling in neutral — and sometimes slipping into reverse. And unless there's a concerted effort to address the structural issues holding LSM back, no amount of sugar-coating is going to change that.

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Business Recorder
10 hours ago
- Business Recorder
ECB to keep rates steady as trade conflict clouds economic outlook
FRANKFURT: The European Central Bank was set to keep interest rates on hold on Thursday, pausing after seven straight cuts as it waited for the fog surrounding Europe's trade relations with the United States to clear. The ECB has halved its policy rate from 4% to 2% in the space of just one year after taming a surge in prices that followed the end of the COVID-19 pandemic and Russia's invasion of Ukraine. With inflation now back at its 2% goal and expected to stay there, euro zone central bankers were likely to stay put this week and observe what kind of tariffs President Donald Trump's US administration would impose on the European Union after an August 1 deadline for talks, all 84 economists polled by Reuters said. The tense and unpredictable trade talks between Washington and Brussels have made policy-making difficult. Trump's threat to impose a 30% duty on EU goods exported to the U.S. - a steeper tariff than the ECB had anticipated under even the most negative of three scenarios it released last month - has forced ECB President Christine Lagarde and her colleagues on the Governing Council to contemplate lower outcomes for growth and inflation. However, two diplomats said on Wednesday the EU and the U.S. were heading towards a deal that would result in a broad tariff of 15% applying to EU goods, an outcome lying closer to the ECB's baseline scenario than the severe possibility. 'If the two sides indeed conclude such a deal, it would support our call that the euro zone economy can regain momentum from the fourth quarter onwards and that the ECB will not need to cut rates further,' Berenberg economist Holger Schmieding said. Among the deals that have been struck so far and could serve as a template for the EU, Japan negotiated a 15% tariff rate, Indonesia 20% and Britain, which runs a trade deficit with the United States, 10%. 'The key point is that tariffs look likely to be higher and more varied across countries than the 10% flat baseline that many had assumed would be the end-point of tariff negotiations,' BNP Paribas's head of developed markets economics Paul Hollingsworth said. The ECB assumes that U.S. tariffs will push down growth and, if there is no EU retaliation, inflation over the medium term. This is why markets and most economists are still betting on at least one more interest rate cut, probably towards the end of the year, as inflation is now at risk of going too low. The euro zone economy is already barely growing and companies, while still optimistic about an upturn ahead, are starting to feel the pinch from tariffs on their profits. Even the ECB's own projections see price growth dipping below 2% for the next 18 months, raising the prospect of undershooting. 'More challenging may be the end of the year, when we see inflation dropping below 1.5% and staying thereabouts for most of 2026,' Societe Generale's Anatoli Annenkov said. 'Here we see risks that inflation expectations follow inflation lower, forcing the ECB to take action to anchor inflation expectations.' On the other hand, banks have seen rising loan demand and policy uncertainty has not yet translated into an economic or market downturn. After a short-lived selloff in April investors have taken the trade turmoil in their stride, with European equity indices close to new highs also thanks to Germany's newly found appetite for spending. In fact, erratic policy-making in the United States, including Trump's relentless criticism of the Federal Reserve, has lured foreign investors to euro zone assets, briefly pushing the euro to the highest level against the dollar since September 2021 at $1.1829 earlier this month. ECB board member and outspoken hawk Isabel Schnabel even said the central bank should watch out for price hikes caused by tariffs and the bar for further cuts was 'very high'. But the euro's appreciation has unnerved other policymakers, who fear a stronger currency would make European exports less competitive and contribute to pushing down inflation. 'On that front, we would expect Christine Lagarde to strike a reassuring tone, reminding people that the ECB does not target exchange rates but that any resulting downward pressure on inflation will be addressed, if necessary,' Julien Lafargue, chief market strategist at Barclays Private Bank, said.


Business Recorder
14 hours ago
- Business Recorder
Gold flat as easing trade tensions offset support from weak dollar
Gold prices held steady on Thursday after a sharp drop in the previous session, as easing trade tensions dented demand for safe-haven assets, overshadowing support from a weaker dollar. Spot gold was flat at $3,387.15 per ounce, as of 0138 GMT, after dropping 1.3% in the previous session. U.S. gold futures eased 0.1% to $3,492.50. 'Yesterday, we saw gold prices seems like well might be building up for the next bullish run until the news came out on trade front, triggering some profit-taking,' said Brian Lan, managing director at GoldSilver Central, Singapore. 'We've seen the dollar has also weakened quite a bit, and of course, this also supports gold. So, I think this is a small retracement at this moment. We are, in fact, still quite bullish on gold.' Signalling progress on tariffs, U.S. President Donald Trump struck a trade deal with Japan that lowers tariffs on auto imports. The European Union and the United States are nearing an agreement on a similar trade deal that would impose 15% tariffs on European imports, while waiving duties on some items, according to officials from the European Commission. Risk sentiment in the wider financial markets rose on the back of progress in trade talks and hopes that more deals could be in the offering. Offering support to gold, the U.S. dollar index (.DXY), opens new tab fell to a more than two-week low, making greenback-priced bullion less expensive for other currency holders. Investors also look forward to a rate decision from the European Central Bank due later in the day. Also on the radar, the U.S. weekly jobless claims numbers on Thursday and S&P Global's flash PMI data will be eyed to gauge economic health ahead of the Federal Reserve's monetary policy decision next week. Spot silver slipped 0.3% to $39.16 per ounce, platinum was steady at $1,411.53 and palladium dipped 1% to $1,265.50.


Business Recorder
3 days ago
- Business Recorder
Dar urges urgent global financial reforms to save SDGs at UN Forum
NEW YORK: Pakistan's Deputy Prime Minister Ishaq Dar delivered a strong call for sweeping global financial reforms during his address at the UN High-Level Political Forum (HLPF) debate, warning that the world is far off track in achieving the 2030 Sustainable Development Goals (SDGs). He stated that with only five years left until 2030, just 35 percent of the SDGs are currently on course. The Deputy Prime Minister blamed the reversal in development progress on the compounded impacts of the COVID-19 pandemic, global food, fuel, and financial crises, and the growing intensity of climate change—all of which have undermined hard-won gains and worsened inequality worldwide. Despite these global setbacks, Dar emphasised that Pakistan remains fully committed to the 2030 Agenda. He highlighted that the country's national development strategies, including its 'Udan Pakistan' framework, are closely aligned with the SDGs. Dar said Pakistan's social protection initiatives, such as the Benazir Income Support Programme and the Benazir Nashonuma child development scheme, are aimed at ensuring inclusivity and preventing marginalisation. To empower the youth, Pakistan has launched the Digital Youth Hub, while efforts are underway to expand access to quality education through smart schools and new university campuses. On the climate front, Dar noted Pakistan's ambition to achieve 60 percent renewable energy by 2030, along with resilience-building projects like Recharge Pakistan and the Living Indus initiative. He added that the country's updated Nationally Determined Contribution (NDC) on climate action is in its final stages. Alongside its climate efforts, the government has introduced key economic reforms to ensure fiscal stability and create a more investor-friendly environment. He said that the Special Investment Facilitation Council (SIFC) is playing a central role in attracting foreign direct investment into key sectors of the economy. However, Dar cautioned that national-level efforts alone are insufficient to bridge the global development gap. He stressed the need for deep reforms in the international financial architecture to support SDG implementation, particularly in developing countries. He called for expanded access to concessional and grant-based resources, meaningful debt relief, and increased climate finance to enable countries like Pakistan to meet the financial requirements of sustainable development. Dar referenced the Compromise of Seville, adopted at the Fourth World Conference on Finance for Development, describing it as a clear and actionable roadmap. He urged the global community not to delay its implementation any further. As the world marks the 80th anniversary of the United Nations, Dar said the Secretary-General's UN80 initiative provides a critical opportunity to strengthen the UN's three core pillars—peace, development, and human rights—and to ensure that the SDGs are achieved on time, not just in principle but in practice.