The HBL Pakistan Manufacturing PMI fell to an eight-month low of 51.1 in May, declining from 51.9 in April, as reported by Habib Bank Limited (PSX: HBL) and S&P Global. The data highlights a slowdown in industrial activity, marking a notable pullback from the series peak recorded in December last year.
Analysts point to multiple contributing factors, most notably the geopolitical unrest in the region and raw material shortages due to road closures and logistical bottlenecks. These disruptions have had a dampening effect on both domestic demand and export activity, which in turn dragged down overall business momentum during the month.
The HBL S&P Global Manufacturing PMI is increasingly being viewed as a key high-frequency economic indicator, offering more immediate insights into business conditions than traditional GDP data. Unlike GDP, which is published quarterly and subject to revisions, the PMI is released monthly and serves as a timely signal of economic health. Furthermore, its focus on private sector activity helps establish a clearer relationship with equity markets, according to the latest press release accompanying the report.
Humaira Qamar, Head of Equities & Research at HBL, shed light on the numbers, noting that “the moderation in business activity was driven by a contraction in new orders, the most forward-looking subindex, emanating from geopolitical unrest and logistical disruptions.” She added that export orders declined for the second consecutive month, further weighing down business sentiment. However, she pointed out that output did see some expansion, though primarily due to the fulfillment of backlogged or existing orders, not new demand.
Despite the prevailing short-term challenges, the outlook for Pakistan’s manufacturing sector remains cautiously optimistic. The report revealed a generally strong sense of business confidence among firms regarding production growth over the next 12 months, supported by expectations of rising demand as conditions stabilize.
The macroeconomic backdrop continues to pose some constraints. Although interest rates are now at their lowest point in the past three years, the government’s ongoing contractionary fiscal strategy has limited the room for accelerated growth. According to provisional figures, Pakistan’s GDP is projected to grow by 2.7% in FY25, a marginal increase from the 2.5% recorded last year.
Attention is now turning toward the federal budget, scheduled for release on June 10. This year’s budget is being crafted in close coordination with the International Monetary Fund (IMF), and is expected to continue fiscal consolidation efforts. Authorities are targeting a primary budget surplus of 1.6% of GDP—marking the third consecutive surplus.
Humaira Qamar also highlighted the implications for fiscal policy, noting that the Federal Board of Revenue (FBR) is expected to achieve a 16% year-on-year increase in tax revenue, outpacing the growth in nominal GDP. This trajectory suggests limited scope for broad-based tax relief in the upcoming fiscal cycle.
“To uphold fiscal discipline and offset potential tax shortfalls, the government will likely bolster non-tax revenues through higher levies on petroleum products and curtail development expenditures,” she explained. “However, defense spending may remain insulated from cuts, given the prevailing geopolitical landscape.”
With continued external and internal pressures, the next few months will be critical in determining whether Pakistan’s manufacturing sector can regain its recent growth momentum or remain subdued in the face of macroeconomic challenges.