The latest HBL Pakistan Manufacturing Purchasing Managers’ Index (PMI) revealed a mild contraction in the country’s manufacturing sector in October, though early signs suggest that positive momentum may be on the horizon. The PMI rose to 49.6 from 48.0 in September but remained below the 50.0 neutral threshold for the second consecutive month, indicating a slight downturn in business activity.
For investors and market observers, the PMI serves as a leading economic indicator, offering timely insights into demand trends, production levels, and overall business conditions. A reading below 50 generally signals contraction, with potential implications for corporate earnings and broader macroeconomic momentum.
The October decline was primarily attributed to subdued demand, with new orders falling for the sixth consecutive month. Manufacturers cited factors such as rising inflation, higher tax burdens, and persistent load-shedding as key challenges. A portion of the weakening demand was linked to falling new export orders. According to the Pakistan Bureau of Statistics, exports contracted by 3.9% year-on-year in the first quarter of fiscal year 2026. Additionally, the central bank highlighted challenging export prospects amid evolving tariff dynamics in its recent policy meeting.
Output levels in the manufacturing sector also declined for a second consecutive month, though the pace of contraction remained moderate. The slower activity in production has affected the labor market, with employment levels dropping for the fourth consecutive month as firms adjusted to lighter workloads and focused on cost rationalization measures. Purchasing activity fell sharply, marking the steepest decline in an 18-month period, reflecting firms’ caution in sourcing inputs amid uncertainty.
Despite these near-term challenges, price pressures persisted in October, driven by rising input costs and tax obligations. Manufacturers responded by raising output prices at the fastest rate in three months to protect profit margins.
Humaira Qamar, Head of Equities & Research at HBL, noted that while the PMI reflects emerging headwinds, market sentiment remains cautiously optimistic. Manufacturers continue to anticipate output growth over the next 12 months, supported by expectations of easing cost pressures and planned business expansions. However, confidence among firms has edged down for the fourth consecutive month as concerns linger over how quickly inflationary pressures might subside.
Looking ahead, analysts believe that green shoots in Pakistan’s manufacturing economy are likely to reemerge, driven by strong business confidence and gradually improving demand-side conditions. The central bank’s recent assessment, projecting growth to reach the upper end of its 3.25–4.25% forecast range, reinforces a positive outlook for the economy in the medium term.
While near-term challenges remain, the combination of stable business expectations, easing cost pressures, and gradual recovery in demand suggests that Pakistan’s manufacturing sector may regain momentum in the coming quarters.
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