KARACHI: Pakistan’s large-scale manufacturing sector contracted sharply in June even as it notched modest growth for the full fiscal year, according to data released by the Pakistan Bureau of Statistics, underscoring how uneven the country’s industrial recovery remains.
The Large Scale Manufacturing (LSM) Index fell 3.5% year-over-year in June 2026 and dropped 6.1% compared with May, reversing the growth trend recorded over the full fiscal year, with production contracting on a month-on-month basis by a sharper 6.08% compared with May.
The June decline was driven primarily by weakness in pharmaceuticals, which fell 17.6%, along with iron and steel products, down 11.8%; wearing apparel, down 13.5%; and textiles, down 6.7%.
The Quantum Index of Manufacturing stood at 120.55 during July-June FY26, up from 114.83 in the corresponding period of the preceding fiscal year, statistics bureau data show. For the full fiscal year, which ended June 30, the LSM Index rose 5.0% year-over-year, marking a partial rebound after several years of subdued industrial activity.
Growth for the year was led by a surge in automobile production, up 57.8%, along with other transport equipment, up 42.4%; electrical equipment, up 14.3%; and coke and petroleum products, up 9.7%. Those gains were partially offset by declines in pharmaceuticals, down 8.9%; iron and steel products, down 7.8%; chemicals, down 2.5%; and fertilizers, down 2.0%.
The full-year figures point to a broader recovery in industrial activity following a prolonged downturn driven by high interest rates, currency depreciation and import restrictions imposed to conserve foreign exchange reserves in recent years. Analysts, however, cautioned that the recovery has not been evenly distributed across sectors.
Pharmaceuticals dragged LSM growth by 0.54 percentage points during the year, followed by iron and steel products at 0.34 points and chemicals at 0.20 points, which also noted textiles’ weakness was particularly significant given the sector’s weight in Pakistan’s manufacturing and export base.
The State Bank of Pakistan had earlier credited the industrial rebound to improving macroeconomic conditions. Lower inflation, easing interest rates and improving domestic demand revived industrial activity during the first half of the fiscal year, the central bank said in its Half Year Report 2025-26, noting automobiles, textiles and petroleum products were among the largest contributors to manufacturing growth during the review period.
The central bank also said it had reduced the policy rate by a cumulative 1,150 basis points between June 2024 and December 2025 to help ease financing costs for businesses.
Automobiles emerged as one of the standout performers of the fiscal year, with production climbing more than 67% year-over-year in some months, according to earlier data cited by industry outlets, as consumer demand rebounded alongside falling borrowing costs.
The manufacturing sector remains a critical pillar of Pakistan’s economy, historically contributing close to a tenth of gross domestic product. Large-scale manufacturing has struggled in recent years amid a broader economic crisis marked by a balance-of-payments crunch, record-high inflation and currency volatility, though conditions have gradually stabilized since 2023 as Pakistan secured International Monetary Fund support and rebuilt foreign exchange reserves.
Analysts said the June contraction, while steep, may partly reflect seasonal and base-year effects following stronger output in the same month last year, but they cautioned that persistent weakness in pharmaceuticals, steel and textiles, sectors central to both domestic supply and exports, could weigh on industrial momentum heading into the new fiscal year if left unaddressed.
