THE pace of growth in large-scale manufacturing output continues to slow down, with LSM production contracting by 4.15pc in February on a month-on-month basis. Overall, the new estimates from the Pakistan Bureau of Statistics show that big industry has expanded by 7.45pc year-on-year during the eight-month period from July to February on the recovering demand for cars, cement and other building material, tobacco, pharmaceutical products etc, as well as measures implemented by the SBP to support businesses affected by Covid-19 through generous liquidity injections. The rebound in big industry, which constitutes about 80pc of manufacturing and 10.7pc of GDP, is a big improvement over the more than 10pc contraction in the last fiscal and has led many to believe the economy has turned the corner. The SBP last month revised its GDP growth projection for the current year to 3pc against the IMF’s forecast of 1.5pc and the World Bank’s 1.3pc. Indeed, the economy has shown signs of early recovery since summer after shrinking by 0.4pc last year on account of harsh IMF-mandated policies and lockdowns. But the reversal in the LSM output growth trend, which appears to be taking hold and may last through the remaining four months of the fiscal year, should help the government and SBP readjust their expectations.

Besides slowing industrial production, there have been other negative developments underlining the fragility of the recent recovery. For example, the agricultural sector is likely to shrink owing to a big drop in the cotton output. Similarly, the third wave of infections is expected to impact manufacturing, wholesale and retail trade, and transport like last year. The recent restrictions on mobility have significantly affected the services sector. Financial constraints have already slowed down public development spending. Although the country’s external sector remains stable and foreign currency stocks are rising on new loans, the recent rise in the trade deficit is worrisome as imports increase and exports drop. So far, the increasing remittances have helped offset the impact of the widening trade deficit on the external sector, but for how long? Further widening of the trade gap and reduction in home remittances could put pressure on the external sector going forward. On the whole, economic indicators are much better today than a year ago. Yet, recovery remains feeble and in need of policy support. But the resumption of the IMF programme could curb the government’s efforts to help the economy unless there’s another plan.

Published in Dawn, April 16th, 2021