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.
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