Pakistan’s manufacturing sector recorded a slight slowdown in operating conditions during October, with the seasonally adjusted HBL Pakistan Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, declining to 50.8 from 50.9 in September. Although the reading remained above the 50.0 threshold that separates expansion from contraction, the latest figure indicated only marginal improvement in overall manufacturing activity and highlighted increasing pressure from higher production costs.
The October reading marked a six-month low for the index, reflecting a mixed operating environment for manufacturers. While new orders returned to growth after contracting in September, rising raw material prices, weaker export demand and declining employment affected the sector’s performance. The latest survey also pointed to growing inflationary pressures, with businesses reporting a sharp increase in the cost of inputs used in production.
Input price inflation reached its highest level since the survey’s data collection began in May 2024. Manufacturers mainly attributed the increase to higher raw material costs, particularly fuel and fabrics. These increases raised production expenses and placed additional pressure on businesses already dealing with challenging operating conditions. The impact was also visible in selling prices, as manufacturers passed a greater share of higher costs on to customers.
Selling prices increased at their fastest rate since April, indicating that cost pressures were spreading beyond manufacturers’ production processes and reaching buyers. This development adds to concerns about the wider inflation outlook, particularly as elevated energy prices and disruptions across the Middle East continue to affect business costs and supply conditions. Higher prices could also influence purchasing decisions and demand for manufactured goods.
The survey showed a recovery in domestic demand during October, with new orders returning to growth after declining in September. Respondents linked the improvement partly to better product quality and stronger domestic demand. The return of new orders provided some support to manufacturing activity, although the increase was not sufficient to offset the pressure coming from higher input costs and weaker export performance.
Export orders, meanwhile, declined for the first time in six months. The survey recorded the sharpest fall in export demand in more than a year, with respondents pointing to higher prices and regional disruptions as factors affecting overseas orders. The decline suggests that manufacturers faced greater difficulty maintaining external demand while dealing with rising production costs. Higher selling prices may also have affected the competitiveness of Pakistani products in international markets.
Employment conditions weakened during the month as well. Manufacturing firms reduced workforce levels for the first time since May, reflecting efforts to manage expenses amid increasing input-price pressures. With raw materials and other production costs becoming more expensive, businesses appeared to be taking measures to control their operating budgets. The decline in employment indicates that cost pressures are influencing not only production and pricing decisions but also staffing levels.
Humaira Qamar, Head of Equities and Research at HBL, said business confidence had softened to a three-month low as inflation concerns and higher raw material costs affected expectations for demand. She noted that the sharp increase in price pressures raised concerns about possible second-round inflationary effects, where higher production costs could feed into broader prices and sustain inflation.
Commenting on the State Bank of Pakistan’s monetary policy response, Qamar said the central bank’s measured 50-basis-point increase in the policy rate to 12.0% reflected an effort to balance improving economic activity against continuing inflationary and geopolitical risks. The rate adjustment comes as policymakers assess the impact of domestic demand, energy prices and external developments on the country’s inflation outlook.
Qamar added that monetary policy was likely to remain dependent on incoming economic data, with upcoming inflation readings expected to play an important role in determining the future direction of interest rates. This approach reflects the challenge facing policymakers as they seek to support economic activity while containing price pressures.
The October PMI results present a mixed picture for Pakistan’s manufacturing industry. The return of domestic orders to growth and the continued expansionary reading indicate that business activity has not moved into contraction. However, the record increase in input price inflation, declining export orders and reduced employment point to growing difficulties for manufacturers.
The gap between domestic and external demand also highlights the different conditions facing businesses. While improved local demand supported new orders, export activity weakened as higher prices and regional disruptions affected overseas sales. Manufacturers will therefore need to manage increasing production expenses while maintaining product competitiveness and responding to changing customer demand.
With the PMI standing only slightly above the 50-point threshold, the pace of improvement in manufacturing conditions remained limited during October. Future performance will depend on how input costs evolve, whether domestic demand can sustain its recovery and whether export orders improve. Inflation data and the State Bank’s subsequent monetary policy decisions will also remain important factors for manufacturers assessing their costs, prices and investment plans.
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