Sri Lanka’s industrial production is seen to be gradually recovering from the prolonged weakness induced by the economic crisis and the stringent policies implemented to stabilise the economy. Recently, it has shown signs of gaining strength.

According to the Index of Industrial Production measured by the Department of Census and Statistics, the index had a reading of 87.2 index points for December 2023, up 8.8 percent from a year ago period.
December marked the third month in a row the industrial activity in the country continued its expansion from their depths in 2022.

It appears that the seamless supply chain conditions after re-establishing the foreign currency availability, cooling inflation and the softening interest rates have together contributed to the industrial sector expansion as of late.
While the recent flare up in prices due to both the increased value added tax and the weather related disruptions in the supply chain could in the near term dampen the industrial activity, the medium term outlook is turning out better than it was a few months ago.

For instance, the manufacturing activity measured by the Purchasing Managers Index pivoted to a growth in October after months-long decline and in December it recorded a reading of 52.7 index points, pointing to a continued expansion.

The December industrial production has been driven by coke and refined petroleum products, followed by rubber and plastic products, beverages, other non-metallic mineral products and chemical and chemical products.
Among the seven major categories under industrial production, food production and wearing apparel production saw declines.

Apparel sector was undergoing a rough patch due to softening demand in the West but signs are such that the demand is returning due to a resilient economy in the face of higher interest rates as the jobs, income growth and consumer spending have held up pretty strong.

As exports are largely going to be robust and the domestic demand conditions also going to see some recovery, it is expected that the industrial activity would continue to become strong in the period ahead.