Industrial production slips as forex crisis bites into manufacturing

Sri Lanka’s industrial production slipped in January signaling a slowdown in overall manufacturing activities as the ongoing foreign exchange crisis, which spilled over into imports, energy and power, and transportation among other things, buffeted its growth, 
which continued for two months.

According to the Index of Industrial production (IIP) released by the Census and Statistics Department, the index for January was at 100.5 index points compared to 107.4 index points in December 2021 and 108.1 index points a year ago.

This is a decline of 0.6 percent from a month ago and 7.1 percent on an annual basis.

IIP measures the strength of an economy’s manufacturing heft, and its slowdown is a proxy for the slowdown in the overall economy.

The industrial sector accounts for roughly a third of the overall economic output in Sri Lanka and it largely navigated the pandemic-induced restrictions unscathed during last two years.  This was seen from the resilience in the country’s merchandise exports sector, which recorded the seventh consecutive month of over a billion dollar earnings in January 2022.

On a monthly basis, food & beverage manufacturing grew while both the textiles & apparel production slipped,

perhaps due to the slowdown in orders from after the end of December year-end season.

Meanwhile, manufacturing of chemical and chemical products, rubber and plastics products, other non-metallic mineral products and basic metals expanded in January over December levels.

The biggest pullback on the January IPP came from the manufacturing of coke and refined petroleum products which fell by 11.6 percent between the two months as the main refinery became dysfunctional due to lack of crude oil as foreign exchange crisis hit the energy sector the most.

The January IPP could be a bellwether for the index’s performance in February and March when the power and energy crisis came to a head.

The Purchasing Managers’ Index for both manufacturing and services, although expanded during February, showed some deceleration in pace of growth due to these macro-economic conditions.