Industrial sector decline deepens in December

• IIP records 80.2 index points, down over 25% YoY

The contraction in the industrial sector activities deepened in December 2022 from a month earlier, in a reflection of the continued decline in the overall economic activity in response to the runaway prices and a flurry of tight policies brought into quell price pressure and to fix the economy. 

Sri Lanka’s Index of Industrial Production (IIP) recorded 80.2 index points in December 2022, down by 25.3 percent from the same month in 2021. In November, the IIP recorded an index value of 81.2, with a year-on-year (YoY) contraction of 23.9 percent. 

Reflecting the continuous contraction, the index gave up 2.4 percent in December from a month earlier, faster than the 2.2 percent decline in November. 

The IIP is a measure of the pure industrial production heft of the country independent of other economic activities.
In a bellwether to what could be expected in the overall economic growth in the fourth quarter, the IIP in the quarter declined by 23.6 percent compared to the same period in 2021. 

The Sri Lankan economy contracted by 11.8 percent in the September quarter, the most since the pandemic in 2020 and the fourth quarter could follow suit, albeit at a lesser scale. 

Among the leading sectors in the IIP, the food production contracted 21.5 percent from a year ago, textiles gave up 37.2 percent, apparel shed 12.1 percent while coke, refined petroleum products slumped 24.7 percent and rubber and plastic products shrank 34.0 percent from the same month in 2021.

Only the production of beverages, tobacco products and wood and wood products recorded slight expansions during the same period. 

Sri Lanka is seeing some softening in demand for its exports in recent months in response to the global economic slowdown and it may also have reflected in some of the categories such as textiles and apparel in the IIP.  While the current sluggish activity levels are expected to persist through the first half of 2023, there is expectation for the economy to stage a recovery in the second half, with the improvement in foreign exchange situation and the expected easing in the monetary policy.