Manufacturing slows amid sluggish demand, eased import restrictions

• Manufacturing PMI recorded an index value  of 45.7 in September, indicating a contraction
• Manufacture of food and beverages and  textiles and wearing apparel show significant  decline 
• However, outlook for manufacturing activities  for next three months remained positive as a  result of expected festive demand
•   Services sector PMI recorded an index value  of 54.7 in September, indicating an expansion

Sri Lanka’s manufacturing  activities continued to  contract in the month  of September, amid sluggish  consumer demand and increased  availability of imported good in  the market at competitive prices,  presumably due to the phased  lifting of import restrictions by  the government. The Manufacturing PMI  recorded an index value of  45.7 in September, indicating  a contraction in manufacturing  activities. An index value below  50 indicates a contraction while  an index value over 50 indicates  an expansion. According to the Central Bank,  the manufacture of textiles and  wearing apparel sector continued  to contract, due to the ongoing  sluggish global demand. “The decrease in New Orders  and Production was mainly  driven by the manufacture of  food and beverages and textiles  and wearing apparel sectors.

Many manufacturers highlighted the challenging  business conditions, due to the lacklustre consumer  demand and the increased availability of imported  goods in the market at competitive prices,” the Central  Bank said. Moreover, the Employment and Stock of  Purchases sub-indices also decreased, in line with the  decline in New Orders and Production. Meanwhile,  Suppliers’ Delivery Time shortened during September  compared to the previous month. However, the outlook for manufacturing activities for  the next three months remained positive, mainly due  to the anticipated increase in demand in the upcoming  festive season. Meanwhile, the Services sector PMI  recorded an index value of 54.7 in September 2023,  indicating an expansion in the services activities at a  slower pace compared to the previous month. This was  led by the increases observed in the New Businesses,  Business Activities, Employment and Expectations  for Activity sub-indices. Nevertheless, Backlogs of  Works remained contracted during the month. New  Businesses increased in September 2023, yet at a  slower pace, compared to August 2023, particularly  with the increases observed in the financial services,  wholesale and retail trade, real estate, insurance and  education sub-sectors. Business Activities also expanded in September  2023, showing positive developments in several  sub-sectors.

Accordingly, business activities in  the financial services sub-sector improved, which  further attributed to the gradual increase in credit  demand, in line with the declining lending rates.  Further, some positive developments were seen in  the education and transportation sub-sectors during  the month. Meanwhile, the accommodation, food and  beverage subsector also continued to increase, yet at  a slower pace, following the slight decline in tourist  arrivals observed during the month. Employment  increased compared to the previous month, owing to  recruitments that took place in several companies,  while Backlogs of Work decreased at a higher pace. Expectations for Business Activities for the next  three months continued to increase at a higher pace in  September, led by the expected seasonal demand and  improvements in economic activities amid the relaxed  monetary conditions.