The HBL Pakistan Manufacturing Purchasing Managers’ Index (PMI) for September registered a notable decline, falling to 48.0 from 50.1 in August. This marks the first contraction in the manufacturing sector since the PMI series began in May 2024, as a reading below 50 indicates a reduction in overall manufacturing activity. Analysts attribute the slowdown primarily to the devastating floods, which disrupted supply chains, curtailed new orders, and pressured industrial output across the country.
A closer look at the September data reveals that new orders suffered a record decline, reflecting weakened domestic demand and logistical challenges caused by flood-affected regions. Many manufacturers reported that the natural disaster impeded raw material supplies and delayed deliveries, forcing them to focus on fulfilling existing orders rather than taking on new business. Consequently, work backlogs were reduced, although the rate of depletion moderated slightly compared to earlier months.
The contraction in the sector also affected employment. For the fourth consecutive month, firms scaled back staffing levels, citing lower workloads and ongoing cost-saving measures. Humaira Qamar, Head of Equities & Research, noted that “firms are adjusting their workforce to align with current production demands while preparing for uncertain economic conditions in the near term.” The trend highlights the delicate balance manufacturers face between maintaining operational capacity and managing costs during periods of disruption.
On the cost front, input prices surged sharply, driven by higher electricity tariffs and flood-related supply constraints. In response, manufacturers accelerated price increases for their finished products in an effort to safeguard profit margins. While these cost pressures contributed to the overall contraction, sector participants remain cautiously optimistic. Qamar commented, “Despite the September setback, manufacturers maintained a positive outlook for output growth over the next 12 months. However, business confidence eased to a three-month low due to prolonged inflationary concerns and a subdued domestic economy.”
Despite the immediate disruptions, there are reasons for a measured optimism. Large-Scale Manufacturing (LSM) output had risen by 9% year-on-year in July, demonstrating the underlying resilience of Pakistan’s industrial base. Qamar emphasized that, although CPI-based inflation is expected to rise in the short term, these pressures are considered transitory. “We expect supply-side constraints to gradually ease, allowing production to normalize and economic activity to recover,” she added.
Prior to the floods, Pakistan’s manufacturing sector was performing well in a global context, with its PMI ranking among the top ten emerging economies out of eighteen surveyed, maintaining a reading above the neutral 50 mark despite external pressures such as U.S. tariffs. The September contraction, while concerning, reflects temporary shocks rather than a fundamental structural decline in the industrial sector.
As Pakistan navigates post-flood recovery, policymakers and industry leaders are closely monitoring supply chain rehabilitation, energy costs, and demand stabilization. The performance of the manufacturing sector in the coming months will be pivotal in sustaining economic momentum and investor confidence, particularly as global conditions continue to improve.
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