The HBL Pakistan Manufacturing Purchasing Managers’ Index experienced a notable decline in March 2026, falling to 52.9 from the 53.6 recorded in February. This dip serves as a preliminary indicator of the mounting economic toll being exerted by the ongoing US-Iran conflict on Pakistan’s industrial landscape. While the index remains above the neutral 50-point threshold—indicating expansion—the pace of growth has visibly cooled as manufacturers grapple with a complex array of geopolitical and domestic challenges that are beginning to stifle the momentum of the sector.
According to the latest survey data, the cooling of the manufacturing sector is primarily driven by a softer rise in both total output and new orders. Industry respondents have noted that while demand for products remains relatively resilient, the benefits of this demand are being systematically eroded by intensifying inflationary pressures. The output index specifically fell well below its six-month average, with many firms explicitly citing high inflation as the primary factor limiting their production capacity. This suggests that the rising cost of doing business is effectively capping the potential for industrial expansion despite the presence of willing buyers.
On the demand side, the growth of new orders edged down only slightly, supported by an improvement in product quality and a surprising surge in external demand. In fact, export orders climbed to a 12-month high during March, indicating that Pakistani goods remain competitive in international markets even as domestic conditions toughen. Despite this silver lining, the overall sentiment remains cautious. In an effort to mitigate potential supply chain disruptions caused by regional instability, many firms have accelerated the building of safety stocks, leading to the most pronounced rise in post-production inventories seen since May 2024.
The human element of the manufacturing sector is also showing signs of strain, as employment growth weakened during the month. Slower output levels and a more conservative outlook on future order growth have led many firms to scale back their hiring plans. This cautious approach to workforce expansion reflects a broader trend of cost-cutting as businesses prepare for a potentially prolonged period of economic uncertainty. The labor market in the industrial heartlands is likely to remain stagnant until there is greater clarity regarding the duration of the current regional conflict.
Price pressures have emerged as the dominant theme in this month’s report, directly linked to the unfolding impacts of the US-Iran conflict. Input costs have climbed sharply, driven by a simultaneous spike in raw material prices, surging fuel costs, and an increased tax burden on the corporate sector. Manufacturers have responded to these rising overheads by aggressively passing the costs onto consumers. Consequently, selling price inflation has reached its fastest rate since August 2024, contributing to a broader inflationary cycle that threatens to dampen consumer spending power across the country.
Kumail Chevelwalla, Team Lead of Equities and Research at HBL, pointed out that business confidence regarding future output expansion has plummeted to a record low. This pessimistic outlook reflects deep-seated concerns about whether current demand levels can be sustained in the face of such persistent price hikes. Financial analysts now believe that the risks are heavily skewed toward a potential interest rate hike by the central bank, especially as higher energy costs begin to trigger broad-based inflation. The future trajectory of Pakistan’s manufacturing sector and its monetary policy will ultimately depend on the intensity and longevity of the regional conflict currently reshaping global markets.
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