Factory output gathers momentum in June; services recover

Sri Lanka’s factory output picked up pace in June, as activities returned to normalcy after Easter Sunday attacks with employees returning to work and production gathering steam after two months of paralysis across sectors in April and May. 

Sri Lanka’s Purchasing Managers’ Index (PMI), which measures the activity levels of the economy within a month, recorded acceleration in both manufacturing and services sectors from their weak reading in the preceding month. 

The manufacturing PMI recorded an index value of 53.9, an increase of 3.2 index points from May. 

In PMI, an index value above 50 indicates an expansion in activities while below 50 indicates a contraction and is compared on a month-on-month basis. 

“This expansion in the manufacturing PMI is mainly attributable to the significant recovery in employment, especially in manufacturing of food and beverages and textiles and wearing apparels sectors, from the lower employment availability experienced after the Easter Sunday attacks,” the Central Bank said.

The manufacturing PMI fell below 50 in April before recovering to 50.7 in May as the Easter attacks on April 21 reverberated through the economy. 

“Expansion in new orders and production, particularly in the manufacturing of food and beverage sector, also contributed to the improvement of PMI in June 2019. 

Many respondents also highlighted that new orders and production recovered to a greater extent in June with the normalisation of economic activities after the disruptions caused by the Easter Sunday attacks”, the Central Bank said. 

Meanwhile, stock of purchases increased considerably with the expansion of new orders and production. 

“Further, suppliers’ delivery time lengthened at a slower rate as a combined outcome of increased demand for supplies of input and the gradual easing of the tight security measures deployed,” the Central Bank added.

All sub-indices under the manufacturing PMI expanded in June. 

The Central Bank last week cut Sri Lanka’s growth outlook to 3.0 percent for this year, the lowest since 2001, and the monetary authority is struggling to lift credit growth after it remained negative for most of the year despite having eased the monetary policy. 

Meanwhile, the services sector PMI also recovered to an index value of 53.1 in June having contracted in April and May. 

The index received a boost from new businesses, business activity and expectations for activity. 

“…respondents in accommodation, food and beverage, and other personal services sub-sectors, which largely depended on tourist arrivals in the country, highlighted that business activities were gradually picking up.

“Expectations for activity were also increased in June 2019 after declining for two consecutive months. However, employment recorded a deterioration compared to the previous month, yet at a slower pace, due to a delay in filling vacant positions,” the Central Bank said.