Industrial production gathers steam signalling economic rebound

Industrial production in Sri Lanka added more heft in December, in a sign of rebound in manufacturing activities, which were repeatedly disrupted by the lockdowns and other mobility restrictions imposed intermittently in response to the virus resurgence. 

According to the data for December 2021, the Index of Industrial Production (IIP), the barometer for the country’s industrial heft, recorded 107.4 index points, gaining from 106.2 index points in November but still down from 119.6 index points reached in March when the economy was recovering, just weeks away from the fresh set of restrictions came in. 

However, the index compared on a year-on-year basis reflected that the December value was still down from a year ago, when it read 110.3 index points. 

The December slippage came mainly from the subindex coke and refined petroleum products, which fell 57.8 percent from 2020 and the production of beverages, which fell by 3.1 percent. 

The coke and refined petroleum products subindex plunged due to the suspension of the Sapugaskanda oil refinery in November, due to the lack of crude oil caused by the forex shortage. 

However, the total oil imports rose by a staggering 88.2 percent, due to over 100 percent increase in refined oil importation in December, to ensure the country has adequate fuel at the pump. 

Meanwhile, among the key sub categories of industrial products, which helped the IIP to stay elevated in December, were food products, wearing apparel, other non-metallic mineral products, rubber and plastic products and chemical and chemical products. 

Wearing apparel in particular had a better run during 2021, as the demand for fabrics and clothing strengthened with the reopening of economies in the West and Europe and the strong consumer demand in those markets, due to several rounds of stimulus checks, which caused their inflation to four-decade highs. 

Sri Lanka could risk its industrial sector momentum, if the authorities fail to arrest the prevailing foreign exchange shortage, as it could spill into the intermediate imports, which form an integral part of making goods. 

Sri Lanka had its highest merchandise imports in 2021 after three years, with the total bill reaching US $ 20.6 billion, up 28.5 percent to US $ 4.6 billion. 

The economists fault the soaring import bill and the run on the reserves and thereby the current foreign exchange shortage to the ultra low interest rates and the record liquidity injections, which sloshed the markets since the onset of the pandemic, which kept the demand at higher levels.