Pakistan: Manufacturing Momentum Could Lift 2026 Growth – OpEd
Apparently, the manufacturing business in Pakistan has managed to have an actual turnaround ending 2025 with a feasible reversal in the working conditions. HBL Pakistan Manufacturing Purchasing Managers Index (PMI) issued by S&P Global increased to 52.8 in December as compared to 52.3 in November and is the highest since February, which demonstrates growth in two consecutive months. Two consecutive points above the 50.0 expansion mark is not lipstick in an economy that has repeatedly had issues in terms of transforming the concept of macro stabilization into overall growth but is an indication that the industrial cycle is moving out of its softness in the mid 2025 into fitter climes.
The case is improved by the number of the headline, as well as the number of the drivers. Companies posted record growth in production and expansion in demand with new orders soaring higher than it was in March. These orderings resulting in and output resultant; manufacturers are not clearing old stocks, but it is typically in response to real demand. In the field, the purchasing managers are finding it easier to have more customers flows and they are so confident that they do not need the next month pipeline to reassure them that they can increase the output.
The most strategically important change is the revival of the external demand. The new export purchases increased to the first month in six months and that signified the completion of the multi-month shrink in the foreign sales. Export has not only been a variable of growth in the macro environment of Pakistan, but also a balance-of-payments stabilizer. Continued increase on exports would reduce the pressure on foreign exchange and would lead to perception of the need to have stop go regulation on imports and ability of the firms to plan on production and procurement. Due to the slow export recovery that might be experienced in the beginning, what matters in this case is the direction.
Other reinforcements to momentum story include labour and inventories. In the second month in the year, the employment growth was realized as companies hired to meet the rise in workload and long working hours. The buying activity also increased, and the manufacturers piled raw-material inventories in case the prices increased and this is one of the largest increases of the pre-production inventories since the time of the survey. These are important signs because these are cost entailed decisions: businesses are not ready to hire employees and waste money shopping stocks. Demand will not be sustained, and companies tend not to do so unless they believe that it will.
At the same time the detail is a contradiction of complacency. In production front, the figure of the work in progresses fell at the lowest point ever regardless of the high production implying that the problem of capacity remains low even after the high production. That factories are clearing off the pending work in an efficient way is open to a positive interpretation, but it can also signify that the demand has not been intense to cause a congestion that would be maintained in the production pipelines. The 50s of PMI is not a boom but an expansion. The healing can be more, but it can also eat away as it passes over the familiar bottlenecks.
Those are non-existent as hypothetical bottlenecks. As the PMI regained its growth territory in the first month of the year 2010, November, manufacturers indicated increased taxes, inflationary pressures, and power supply as the most challenging factors. The prices of inputs continued to rise sharply in December and the deterioration in supplier performance was even more pronounced, with companies citing high fuel and transport prices and poor road conditions among some of the drivers that were pressuring suppliers. When the cost is rising at a faster rate than the selling price, then margins are squeezed; when the reliability of the supply is lowered, then the delivery times will be out of schedule and when that is permanent then the credibility of the exporters in the competitive markets will no longer exist.
On a positive note, the business mood has been in an uptrend which is a significant leading indicator in that the business mood determines the hiring, credit interest, and the intention to invest before the actual numbers. Due to the better economic and inflationary trends, companies have observed that confidence rose on the July levels. The improved outlook was also followed in the commentary of December to the recent declining rate set by the State Bank and expected to have the mean inflation of 5-7%. Low financing costs in the case of disinflation would help in converting the short-term operating gains into investment in case the firms would have assumed that the operating environment would not be volatile.
The December 52.8 PMI in my view should be considered as an opportunity to 2026 and not a lap of honour. The second is to convert the expansion of the surveys into enduring output and productivity enhancement through the protection of the two most important forces of domestic demand and export competitiveness. It means certain energy and pricing, faster and cheaper freight and ports, and an attitude on taxes and regulations promoting formalization and scale, not the other way round. The more the policymakers and industry can get away with the recovery compounding, the more the manufacturing impetus, the more the GDP growth, the reduction in the external pressures through exports as well as the rising incomes through the establishment of the jobs, the kind of job-rich industrialization that Pakistan has desired over the decades, and needs at present, on a national level.
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