Manufacturing and services activities expand in Sept.

• Expectations on future manufacturing activities down due to spike in COVID-19 cases 

Sri Lanka’s manufacturing activities expanded at a higher rate with an index value of 59.8 in September 2020, an increase of 1.9 index points from August, according to the Purchasing Managers’ Index compiled by the Central Bank.

This expansion in manufacturing PMI was mainly attributable to the increase in Production and New Orders, especially in manufacturing of food & beverages and textiles & wearing apparel sectors.

Some respondents in the manufacturing of food & beverages and textiles & wearing apparel sectors highlighted that their factories operated at full capacity receiving more new orders with the normalisation of business activities. 
Further, the Employment sub-index increased in line with these developments. Also, the Stock of Purchases sub-index increased at a slower pace in September. 

The Suppliers’ Delivery Time sub-index continued to lengthen at a higher pace, due to issues in logistics such as shortage of direct shipping services.

Some respondents highlighted that restrictions imposed on the importation of certain categories of goods continued to affect the smooth functioning of manufacturing activities.

The sub-index of overall expectations for manufacturing activities for the next three months declined significantly due to the COVID-19 virus spreading, particularly centering to some manufacturing zones.

Meanwhile, services sector continued to expand for the fourth consecutive month with the PMI recording 54.3 in September 2020, though 1.7 index points down compared to August 2020.

This was underpinned by the expansions observed in New Businesses, Business Activities and Expectations for Activity compared to August 2020 indicating a further recovery of services sector activities. 

New Businesses, particularly in financial services and insurance sub sectors, improved in September 2020 with the gradual normalisation in economic activities. 

Business Activities also expanded in September 2020, yet at a slower pace.  Financial services sub-sector was the main contributor to this expansion with increased financial facilities provided to support businesses, which were negatively affected by the pandemic. Further, respondents in cargo handling services cited that they were able to handle more transshipments in September 2020. 

Moreover, business activities related to insurance and professional services sub-sectors also expanded during the month. Employment sub-index almost reached the 50-threshold level in September 2020 after a continuous decline in employment for seven months. 

Backlogs of Work continued to remain in the negative territory indicating that any increase in demand can be met with the existing capacity. Meanwhile, Expectations on future Business Activities increased further in September 2020, with the positive sentiments that prevailed on economic recovery in the second half of the year.

Nevertheless, some respondents expressed concerns on the realisation of their expectations due to the re-emergence of the risk of COVID-19 virus spreading in the country.