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Coronavirus spread: industrial output may take further hit

The economists urged that nothing is safe from disruptions globally and various main companies are considering bringing back manufacturing facilities and seems less interested in economic integration. In Pakistan because of ongoing coronavirus spread, industrialists urged that the lockdown in the country poses a threat to their survival because of sluggish production and additional cost of paying wages to an unproductive workforce. The industrial sector also urged it is now struggling to stay afloat amid the lockdown, with rising numbers of industrialists, already burdened with various taxes, higher utility charges and interest rates, expressing their inability to pay workers in May 2020. For the industrialists, the current lockdown has led to income erosion and further cost of doing business, as they have to pay salaries and arrange rations for idle workers and daily wage earners. No doubt the Pakistan’s powerful business community was under pressure from the Government of Pakistan to ease the lockdown because of financial losses.

In spite of all these the State Bank of Pakistan (SBP) reported that there are glimpses of some enhancement in the output of the industrial sector in Q2-FY2020 over the previous quarter. Specifically, Large Scale Manufacturing (LSM) output’s contraction decelerated abruptly during Q2-FY2020. It registered a meager rise of 0.02 percent (YoY) as against to fall of 5.7 percent in Q1-FY2020.

Automobile

Statistics released from SBP showed that this sector’s output contracted 36.4 percent in H1-FY2020. This is a register low growth since the rebasing of LSM in FY2006. In addition, the automobile sector decelerated more in Q2-FY2020 as against to the preceding quarter. It is also reported that major contributor to this performance – because of its weight in LSM Index – was the passenger car segment. That said, output of other subsectors also dipped abruptly. Focusing on LSM statistics for automobile sector, large rise in prices on account of exchange rate adjustment stayed the main cause for fall in demand for automobiles. This was partially the result of low level of localization of auto parts. Furthermore, the fall in output of the automobile sector can also be traced to fiscal consolidation and tight monetary policy in the country. New entrants have somewhat changed the dynamics of this sector.

Construction-allied industries

The officials of SBP also revealed that the output of the steel industry fell by 12.3 percent during H1-FY2020; however, the pace of contraction slowed in Q2-FY2020, against to the previous quarter. On overall basis, the fall in H1-FY2020 was more visible in billets, which is indicative of subdued construction activity in the economy of Pakistan. Scrap imports that are intermediate inputs for the steel industry, small-scale producers in particular, recorded a 17.0 percent quantum drop as well.

Facts and figures also showed that the finished steel products also saw significant decline in growth of 28.3 percent during the period. However, the demand for flat products (steel sheets) remained intact. All Pakistan Cement Manufacturers Association (APCMA)’s statistics on cement dispatches explained that growth stood 9.9 percent during Q2- FY2020 from 2.6 percent in preceding quarter.

 

Fertilizer

The SBP also added that the fertilizer sectorstayed its upward trajectory, rising by 4.9 percent during H1-FY2020 as against to 6.5 percent growth in same period last year. Furthermore the fertilizer sector highlights that growth was driven through the urea units, mainly the small scale units. However, the output of other fertilizers like DAP, SSP, and NP fell more. Beginning with urea sector consequences, its growth was registered at 7.8 percent in H1- FY2020, slightly lower as against to 8.5 percent previous year based on National Fertilizer Development Center (NFDC) statistics. It is also recorded that large urea units kept up growth momentum for the third year running, as their cumulative production increased by a further 2.3 percent during the period. In addition, smaller units built on last year’s performance and recorded growth of 84.2 percent during H1-FY2020.

Tobacco

Furthermore, cigarette production declined by 29.3 percent in H1-FY2020 as against to last year. The officials also noted that the re-introduction of two-tier excise duty structure, uncertainty regarding the implementation and mechanism of track and trace system, and continued competition from counterfeits and smuggled alternatives hindered the sector’s progress during H1-FY2020. The Government of Pakistan reverted to two-tier duty structure for cigarettes to discourage tobacco usage and raise revenue collection. Notwithstanding the ensuing scale of fall in production, consumption may not have declined through the same rate in such a short time, since cigarette use usually tends to be relatively inelastic in nature.

Sugar

The sugar sector output surged by 97.1 percent in December 2019 as compared a contraction of 37.2 percent in the same month previous year. In Pakistan, a typical sugar production cycle is from November to April, with greater than 90 percent of the activity concentrated in the 4-month period December to March. Timely commencement of cane crushing, as against to the delay in FY19, led to an unusually high growth rate in sugar production because of the base effect. However, on an overall basis, processing is predicted to remain around last year’s level as estimates point to only a marginal raise in sugarcane production during FY2020.

Textile

The textile sector performance in H1-FY20 explained signs of recovery as it managed a growth of 0.4 percent in production as against to fall of 0.2 percent in H1-FY19. Impetus to growth came mainly from the yarn and cloth segments while woolen and jute goods recorded substantial fall in production. On the export front, textile group increased 3.9 percent in H1-FY2020 to US$ 6.9 billion, which was the highest level since H1-FY2014.

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