Industrial production dives as tight policies weigh on consumer demand

• Industrial production in October declined to 85.9%, from 91.0% in September

October industrial production fell substantially from a month ago, deepening the decline in the economy through its fourth quarter after it gave up nearly 12.0 percent of its output in the third. 

The Index of Industrial Product (IIP), which gauges the monthly changes in the industrial sector heft in the country, reported an index value of 85.9 index points, falling from 91.0 in the month before, reflecting that the perceived normalcy in the economy after its upheaval seen in the second and third quarters is yet to uplift the manufacturing sector in the country. 

Meanwhile, on an annual basis, the IIP fell by 21.6 percent, from 109.5 index points, logging a steep decline in the index from a year ago, reflecting how deep the industrial activities have dipped from their year earlier levels, which was also somewhat beset by the pandemic-related restrictions and the brewing foreign exchange shortages. 

However, Sir Lanka’s manufacturing sector has shown relative strength compared to services es sector from 2020 through 2022, as the sector continued to function defying most of the virus-induced disruptions to provide for the international and local demand, which remained robust. 

The services activities remained underwhelmed mostly during these two years until 2022, as people cut down on leisure, travelling, dine-outs, outdoor entertainment and other recreational activities. 

Meanwhile, the major sub divisions in the IIP showed in October that the production of food products and beverages had declined quite sharply by 23.0 percent and 11.7 percent, respectively from their year earlier levels, reflecting the country’s weaker demand conditions. 

In fact, this was proven by the survey carried out by the Central Bank for Purchasing Managers’ Index, where the respondents cited the extremely low disposable incomes of the people as the sole reason for the poor food and beverage production activity. 

The Central Bank in April this year slammed brakes on monetary accommodation and the government slapped taxes on consumption as part of its playbook to tackle inflation by destroying demand, which it claimed as the main element in driving the prices higher. 

Among other major categories of the industrial index, with the exception of production of wearing apparel and chemical and related products, all else logged declines by between 21.3 percent to 97.9 percent from their year earlier levels. 

The wearing apparel advanced 0.2 percent, from year earlier levels in October, reflecting the languishing nature of the industry, as the sector is confronted with cooling demand from their key clients on both sides of the Atlantic, as their consumers are pulling back on purchases in response to the aggressive interest rate hikes by their central banks to combat their decades high inflation. 

While the worst may be behind the Sri Lankan economy, it is unlikely Sri Lanka will return to any growth till 2024, as the country is still reeling from an acute foreign currency shortage and elevated interest rates, which have taken a significant toll on the investment and consumption activities.