Economic activities intact despite April slowdown 

Economic activities measured by the Purchasing Managers’ Index (PMI) showed a seasonal setback in April as the demand cooled soon after the peak business ahead of the New Year while the factories closed for the holidays.
Accordingly, the manufacturing sector PMI recorded an index value of 42.0 for April, down from 62.5 index points in March during heightened activity level ahead of the New Year. In services, the index recorded a value of 56.7 index points, slowing from 67.7 index points in March.

In PMI, an index value of 50.0 splits an activity between an expansion and a contraction. Despite the seasonal contraction during April, Sri Lanka’s manufacturing activities were steadily recovering and will continue to do so, given the recovering demand with the easing rates and rising sentiments.

The higher rates and the self-imposed fiscal constraints to appease the International Monetary Fund (IMF) could continue to weigh on demand from reaching its full potential. In April, new orders declined mainly due to the end of the festive season demand, particularly for food and beverages while the contraction in production has been due to the fewer working days as most factories were temporarily closed for the New Year.

The comfortable levels of foreign currency and the rupee appreciation seen so far could also add a further tailwind for the manufacturing sector to prolong its expansion.

Meanwhile, the services sector expansion in April was supported mainly by financial services as interest rates continued to come down, accelerating credit flows to the real economy and thereby the economic activities.
Further, business activities in the wholesale and retail trade too saw considerable growth due to seasonal demand. Meanwhile, the programming and broadcasting, telecommunication and real estate sub-sectors also recorded positive developments but the accommodation, food and beverage sub-sectors declined slightly during April in line with the decline in tourist arrivals on a month-on-month basis.

Respondents from both manufacturing and services sectors had positive outlooks for the next three months as the demand is picking up slowly while the macro-economy remains stable.