Manufacturing and services activities expand in August

Sri Lanka’s manufacturing and services activities made gains in the month of August compared to July, which was marked by unprecedented social upheaval, where a sitting president was forced to flee the country and resign in exile. 

According to the Central Bank, the manufacturing PMI recorded an index value of 49.6 in August 2022, up from July, yet at slightly below the neutral threshold level. 

The rate of decline in manufacturing activities was softened with the improvements reported in Employment and Stock of Purchases compared to the previous month while Production and New Orders declined at a slower pace. Further, the Suppliers’ Delivery Time was shortened with improved mobility.

Overall Production and New Orders declined marginally in August 2022 compared to July 2022. 

However, considering the largest manufacturing sub-sectors, an increase in Production and New Orders was reported in the manufacture of textile and apparel sector, limiting the overall decline to a marginal level, while the manufacture of food & beverage sector maintained Production and New Orders at the same level as of July 2022. 
Many respondents of the survey revealed that improved fuel availability on a month-on-month basis positively affected manufacturing activities. 

Meanwhile, Employment increased in August 2022, particularly in the manufacture of textile and apparel sector which frequently suffered by scarcity of employees. 

The increase reported in Stock of Purchases was mainly due to higher activity levels anticipated in the coming months. Some respondents mentioned that slightly improved foreign exchange availability in the market allows them to open letters of credit to import materials.

Expectations for manufacturing activities for the next three months indicated an improvement in August 2022, for the first time since February 2022, reflecting an improved business sentiment on gradually restoring stability and anticipating a more conducive environment for manufacturing activities in the coming months despite demand side impediments.

Meanwhile, services PMI returned to the growth territory in August 2022, recording an index value of 51.7 after declining for four consecutive months. This expansion was driven by the increases observed in New Businesses, Business Activities and Expectations for Activity.

New Businesses expanded in August 2022 compared to July 2022, particularly with the improvements observed in financial services, real estate, transportation and other personal activities sub-sectors.

With the increase in mobility amid the easing of fuel crisis Business Activities in the services sector increased in August following a continuous decline for four months in a row.

Accordingly, the business activities mainly related to financial services, other personal activities, real estate and insurance sub-sectors showed improvements compared to the previous month. Nevertheless, as highlighted by many respondents, the other supply side constraints continued to negatively affect business activities of some sub-sectors. 

In addition, the low demand led by high inflation reportedly weighed on business activities. As such, wholesale and retail trade sub-sector showed a major decline during the month.

Employment continued to fall in August due to increasing resignations besides halt in new recruitments, non-renewal of existing employment contracts and retirements. Meanwhile, Backlogs of Work dropped during the month mainly with the ease of transportation difficulties faced by the staff.