By Azam Tariq

Pakistan's manufacturing sector staged a strong recovery in FY2025-26, with large-scale manufacturing (LSM) growing by 6.11% after contracting in the previous fiscal year, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The turnaround marks one of the most significant developments in the country's industrial sector during the fiscal year and played a major role in supporting overall economic growth of 3.7%.

According to the survey, the industrial sector as a whole expanded by 3.51% in FY2025-26 compared with 5.56% growth in the previous year. The improvement in manufacturing was supported by easing inflation, exchange rate stability, improved business confidence and stronger domestic demand.

The survey notes that the manufacturing sector grew by 6.6% during the fiscal year, up from 2.0% in FY2024-25. Large-scale manufacturing remained the primary contributor to this recovery.

Out of 22 industrial groups monitored under the LSM index, 16 recorded positive growth during July-March FY2026, indicating broad-based improvement across the manufacturing landscape.

Among the major performing sectors, food manufacturing recorded growth of 9.77% during July-March FY2026, supported by improved agricultural output and stronger domestic demand. The textile sector expanded by 0.75%, while wearing apparel recorded growth of 6.60%.

The automobile industry emerged as one of the strongest contributors to industrial recovery. The survey shows that automobiles recorded growth of 61.66% during FY2025-26 as lower inflation, improved consumer confidence and easing financing conditions supported demand.

Production of cars, jeeps and light commercial vehicles rose substantially during the fiscal year, while output of motorcycles, trucks and buses also increased.

The beverages sector registered growth of 7.69%, while electrical equipment manufacturing expanded by 11.87%.

The survey also reports notable growth in coke and petroleum products, rubber products, transport equipment, furniture and other manufacturing, while pharmaceuticals declined by 5.14%.

According to the Ministry of Finance, the recovery in manufacturing was supported by improving macroeconomic fundamentals. Inflation moderated significantly during the year, reducing cost pressures on businesses and improving purchasing power.

The exchange rate remained broadly stable, allowing manufacturers to plan production and imports of raw materials with greater certainty. The availability of industrial inputs also improved compared with the previous fiscal year.

The survey highlights that easing financial conditions contributed to stronger industrial activity. Lower borrowing costs encouraged businesses to expand production capacity and undertake fresh investments in machinery and equipment.

Construction-related industries also benefited from the recovery. The construction sector grew by 5.73% during FY2025-26, generating demand for cement, steel, electrical equipment and other industrial products.

The survey notes that manufacturing remains a critical component of Pakistan's economy because of its strong linkages with agriculture, services, exports and employment generation.

Industrial recovery also supported broader economic activity through increased demand for transportation, logistics, financial services and trade-related activities.

According to the survey, improvements in energy availability, policy reforms and efforts to facilitate business activity further supported the manufacturing sector during the fiscal year.

The government continued to implement measures to improve industrial competitiveness, focusing on tariff rationalization, digitization initiatives, investment facilitation, and broader economic reforms.

The survey also points to the growing importance of export-oriented manufacturing in strengthening the country's external sector. Industries such as textiles, apparel, pharmaceuticals and engineering goods continue to play a significant role in export earnings and foreign exchange generation.

The Ministry of Finance notes that the broad-based recovery across multiple manufacturing industries reflects improving confidence in the economy and the effectiveness of stabilization efforts undertaken over the past two years.

With industrial production regaining momentum and a majority of manufacturing sectors returning to growth, the sector provided an important foundation for economic expansion during FY2025-26 and strengthened prospects for sustained industrial development in the years ahead.

Credit: INP-WealthPk