Pakistan’s Large Scale Manufacturing (LSM) sector recorded a significant recovery during fiscal year 2026, growing by 4.98 percent compared with a contraction of 0.7 percent in the previous year. The improvement indicates a broad recovery in industrial production, with growth recorded across 16 of the 22 sectors monitored under the LSM index. Automobile, food, wearing apparel, and coke and petroleum products were among the sectors that contributed to the overall expansion during the year.
The automobile sector contributed 1.6 percentage points to LSM growth, followed by the food sector at 1.2 percentage points, wearing apparel at 0.9 percentage points and coke and petroleum products at 0.7 percentage points. The performance across these sectors helped offset weakness in other areas and supported the overall recovery in industrial output during FY2026. The expansion comes after the manufacturing sector experienced a contraction in the preceding fiscal year.
Despite the strong annual performance, LSM activity weakened during the final month of FY2026. Production declined by 3.5 percent year on year in June 2026 and fell by 6.1 percent compared with May. The monthly decline was primarily associated with contractions in wearing apparel, textiles and pharmaceuticals. These three sectors together accounted for more than three fourths of the overall monthly decline and contributed around 4.6 percentage points to the reduction recorded during June.
The performance of the automobile industry improved significantly as the new fiscal year began. During July FY2027, automobile production continued to show strong growth, with production of trucks and buses increasing by 100.4 percent. Car production rose by 75.6 percent, while production of two and three wheelers increased by 40.7 percent. The substantial gains across these vehicle categories point to stronger industrial activity in the automobile segment during the opening month of FY2027.
The automobile sector’s performance follows its contribution to the broader LSM recovery during FY2026. The sector was one of the leading contributors to manufacturing growth during the previous fiscal year, and its strong production figures in July indicate that the momentum continued into the new fiscal year. Increased output across commercial vehicles, passenger cars and two and three wheelers contributed to the stronger industrial activity recorded at the beginning of FY2027.
The cement industry also recorded higher dispatches during July 2026. Cumulative cement dispatches increased by 6.02 percent during the month, with total volumes reaching 4.5 million tonnes compared with 4.2 million tonnes in July 2025. The increase in overall dispatches was primarily driven by stronger domestic demand, with local cement dispatches rising by 17.3 percent to 3.8 million tonnes from 3.2 million tonnes during the same month last year.
The increase in domestic cement dispatches indicates stronger activity within the local market at the start of FY2027. Cement demand is closely linked with construction and infrastructure activity, making the 17.3 percent increase in domestic dispatches an important indicator of activity in the construction related supply chain. The rise in local volumes also played a major role in the overall increase in cement dispatches during the month.
Cement exports, however, moved in the opposite direction during July. Export volumes declined sharply by 29.9 percent, falling to 705,341 tonnes from 1.007 million tonnes recorded in July 2025. The decline in exports limited the overall increase in cement dispatches despite the strong performance of the domestic market. As a result, total cement dispatches increased at a slower pace than domestic dispatches alone.
The contrasting performance between domestic and export cement markets highlights the uneven nature of industrial activity at the beginning of FY2027. While domestic dispatches recorded double digit growth, exports experienced a significant decline. The overall increase in cement volumes was therefore supported mainly by domestic demand rather than external markets.
The broader manufacturing figures also show that the recovery remains uneven across individual industries. Although 16 out of 22 LSM sectors recorded growth during FY2026, the contraction in several sectors during June demonstrates that industrial activity continues to vary considerably between segments. The decline in wearing apparel, textiles and pharmaceuticals during the final month of FY2026 was particularly significant because of their combined contribution to the monthly reduction.
The stronger performance in automobiles and domestic cement demand at the beginning of FY2027 nevertheless provides positive indicators for industrial activity. Higher vehicle production across multiple categories and increased domestic cement dispatches suggest that demand conditions in important parts of the real economy have strengthened. These developments follow the broader recovery recorded in LSM during FY2026.
Pakistan’s LSM sector therefore closed FY2026 with a 4.98 percent expansion after contracting 0.7 percent a year earlier, marking a substantial improvement in industrial production. The recovery was supported by several sectors, with automobiles, food, wearing apparel and coke and petroleum products among the leading contributors. The new fiscal year has started with particularly strong automobile production and higher domestic cement demand, although the sharp fall in cement exports and the weakness recorded in several manufacturing sectors during June show that the recovery remains mixed across the industrial economy.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.