HBL Manufacturing PMI Falls Amid Stagflationary Headwinds

The HBL Manufacturing PMI came in at 49.9 during April 2026, down from 52.9 in the previous month, marking the first contractionary reading since October 2025, when widespread flooding disrupted activity. The latest data points to the emergence of broad-based stagflationary pressures emanating from Middle East War.

Manufacturing activity weakened across key segments, with both the Output and New Orders Indices declining for the first time in six months, mainly attributed to rising raw material prices from the impact of the US-Iran war. The downturn also included international markets, as new export orders fell for the first time in three months, albeit only fractionally. Manufacturers often commented that higher orders due to quality improvements were mostly offset by the impacts of the war in the Middle East on key export partners.

The deterioration in demand translated into lower employment levels and a notable reduction in work backlogs. Simultaneously, inventory levels fell for the first time since the start of the year, the sharpest contraction in the series’ history as manufacturers opted to fulfil orders using existing stocks.

There are clear signs that the surge in fuel costs is feeding into broader inflationary pressures. Input prices surged to a series high with increased cost burdens widely linked to increased raw material prices, particularly fuel. In response, manufacturers opted to raise their own selling prices to the fastest pace in 21 months.

Commenting on the latest PMI reading, Kumail Chevelwalla, Team Lead Equities & Research – HBL, said business confidence weakened sharply amid heightened uncertainty. “Business confidence in the expansion of output fell to a record low, reflecting uncertainty over the eventual resolution of the conflict and the potential timing of any easing in inflation. Consistent with the stagflationary signals in the PMI, the State Bank of Pakistan, in its recent Monetary Policy Committee meeting, raised the policy rate to 11.5%, defying consensus expectations.

Pakistan thus emerges as one of the first economies to tighten monetary policy in response to the shock. We view this move as necessary and proactive, given the rising likelihood of a higher‑for‑longer oil price environment, helping to anchor inflation expectations and limit second‑round effects.”