Industrial production expands in November

Sri Lanka’s industrial production grew for the second month in a row in November, in a sign of continuing momentum in manufacturing activities, although the activities remain still far below their recent peaks before the crisis in 2022.
Measured based on the Index of Industrial Production, the index recorded a reading of 89.7 in November 2023, logging a 10.8 percent increase from the same month in 2022, a time when the country was reeling heavily from the economic crisis caused by the foreign currency shortage.
November also marked a slight advance in the sector from October, when the index read 89.2 index points, measured on a year-on-year basis, which also coincided with the time when the overall manufacturing sector exited the eight-month-long contraction, based on the Purchasing Managers’ Index.

The Index of Industrial Production, albeit somewhat a lagging indicator compared to the Purchasing Managers’ Index, offers exclusive insights into the country’s industrial heft and its direction on a monthly basis.
The industrial production, despite its back-to-back improvements seen since October last year, hasn’t surpassed the 100.0 index point level in more than 19 months.
The index finally had a reading above 100.0 index points back in February 2022, at the onset of the foreign exchange crisis, which precipitated into a full-blown social and political crisis, bringing the entire economy into a standstill, due to the widespread shortages in many commodities.

Both acute and prolonged shortages in foreign exchange, restrictions on some of the imports and more crucially the sky-high interest rates and taxes, which were brought in to crush the runaway inflation and to fix the budget at the time, took a significant toll on the industrial activities in 2022 and a major part of 2023. Swaths of people lost their jobs and businesses in the sector, specially at the small and medium scale levels, which haven’t yet recovered yet, as the demand conditions in the economy remain still at anaemic levels, despite the interest rates are coming off their peaks.
The November industrial production was lifted predominantly by the coke and refined petroleum products sector, followed by the manufacturing of food products.
The rest of the five subdivisions, out of the major seven under industrial production, including wearing apparel, contracted from a year earlier levels.
The textiles and apparel sector has been undergoing a downturn since late 2022, due to the then red-hot inflation in its key markets in the US and Europe, followed by a series of interest rate increases by their central banks, aimed at softening their demand conditions in a bid to rein in inflation.