Manufacturing hindered by persistent subdued demand; services sustain growth

• Manufacturing PMI in July records index value of 44.4; services PMI records index value of 59.5, indicating expansion 

Despite the recent improvements observed in the macroeconomy, Sri Lanka’s manufacturing activity has not yet shown signs of recovery, whereas the services sector continues to exhibit growth.

The manufacturing PMI continued to decline in July 2023, recording an index value of 44.6, indicating a delay in the recovery of manufacturing activities. This setback was contributed by the subdued performance observed in all the sub-indices. 

An index value below 50 indicates a contraction and a value beyond 50 indicates an expansion.

According to the PMI survey conducted by the Central Bank, the decline in Production and New Orders was mainly due to the setback in the manufacture of food and beverages and textiles and wearing apparel sectors. 

Most of the respondents in the manufacturing of food and beverages sector still suffer from subdued demand conditions, despite the reduction in market prices. 

Further, the manufacturers in the textile and wearing apparel sector endured with lack of new orders, amid intense competition in the global market and unfavourable demand conditions. 

In parallel to the decline in New Orders and Production, the Employment and Stock of Purchases sub-indices also decreased during the month. It was found that most companies tend to fill only the essential vacancies, reducing Employment in July as well. 

Meanwhile, Suppliers’ Delivery Time remained shortened in July 2023 compared to the previous month.

Expectations for manufacturing activities for the next three months indicated a marginal improvement, considering the current economic environment.

Meanwhile, the services sector PMI increased further to record an index value of 59.5 in July 2023, indicating continued expansion in the services activities. 

This was led by the increases observed in the New Businesses, Business Activities, Employment and Expectations for Activity sub-categories. Nevertheless, Backlogs of Works remained contracted during the month. 

New Businesses increased in July 2023 compared to June 2023, particularly with the increases observed in the accommodation-related services, financial services, other personal services and professional services sub-sectors. 

The Business Activities sub-category experienced a consistent growth in July 2023, with improvements across most of the sub-sectors.  Accordingly, amid the highest tourist arrivals recorded during the year, accommodation-related services recorded improvements during the month. 

The Financial Services sub-sector also showed further improvements, driven by the gradual decrease in market interest rates. In addition, some positive developments were observed in other personal services and professional services sub-sectors during the month. 

Employment rose for the first time after a span of 15 months, due to the ongoing recruitments at several companies, the survey found.

Meanwhile, Backlogs of Work decreased at a slower pace during the month.

Expectations for Business Activities for the next three months continued to improve in July, due to the prevailing conducive economic conditions.