Manufacturing and services activities hit rock bottom in April

• Manufacturing PMI records all-time lowest index value of 24.2 points
• Services sector PMI declines to a record-low of 29.9 index points

The COVID-19-induced downturn in the Sri Lankan manufacturing sector deepened during April as reflected by further contraction in the Manufacturing PMI, which recorded at an index value of 24.2, with a fall of 5.8 index points from the previous month, reaching the lowest level since the beginning of the survey.

This decline in the index was mainly driven by the New Orders, Production and Employment sub-indices, which declined at record rates.

With the continuation of islandwide curfew to limit the spread of the virus, almost all the manufacturing establishments either remained closed during the month of April 2020 or operated at a fraction of their usual capacity.

Accordingly, the New Orders, Production, Employment and Stock of Purchases sub-indices remained far below the neutral threshold.

Many respondents in the textile and wearing apparel sector highlighted that they have not received orders for their regular products, particularly from the US and European buyers, due to the rapid spread of COVID-19 in those countries.

Moreover, the decline of Employment was mainly due to discontinuation of some casual/temporary employees. The stock of purchases also decreased in line with the decline of production and new orders.

Suppliers’ Delivery Time lengthened further during the month of April, softening the decline in the overall index to a considerable extent. Although lengthening of Suppliers’ Delivery Time typically indicates higher demand for materials with the expanding manufacturing activities, in this instance, the longer lead-times have been caused by the delays in shipments and local logistics, linked to the COIVID-19 pandemic.

The manufacturers remain cautioned that the COVID-19 pandemic would disrupt the global supply chain as well as demand. However, the overall expectations for manufacturing activities for the next three months increased compared to the previous month, still remaining below the neutral threshold.

The global manufacturing PMI recorded a value of 39.8 in April 2020, with a decrease of 7.5 index points from March 2020.

Meanwhile, the services sector PMI declined to a record-low of 29.9 index points in April 2020, down from 32.0 in March 2020, as the Business Activities and Employment sub-indices fell at higher rates, due to the extended lockdown measures taken to curb the spread of the COVID-19 pandemic. The Business Activities sub-index declined sharply to 8.6 index points, the lowest value since the beginning of the survey, signifying the extensive impact of the COVID-19 pandemic on the Services activities.

Business Activities of transportation sub-sector declined further following the prolonged domestic travel restrictions and slowdown in cargo handling, due to the restrictions and disruptions to international trade.

In addition, Business Activities of accommodation, food and beverage sub-sector also declined attributable to domestic travel restrictions and zero international tourist arrivals during the month.

Despite the prevailing demand for essential goods, Business Activities of wholesale and retail trade sub-sector declined due to the difficulties in scaling of delivery operations and the complete halt of business operations along with the drop in demand for non-essential goods.

The Employment in Services sector continued to decline, due to the discontinuation of the service of contractual and casual employees, amidst the freeze of new recruitments.

New Business and Expectations for Activity declined in April 2020, yet at a slower pace.

However, the respondents in financial, health and professional services, wholesale and retail trade and transportation sub-sectors are rather optimistic on future business activities with the steps taken towards the resumption of civilian life and institutions back to normalcy.

Backlogs of Work continued to increase in April 2020, cushioning the overall index to a greater extent.

Though the increase in Backlogs of Work usually indicates an expansion in business activities that cannot be met within the existing operating capacity, the increase in April 2020 was primarily due to the prolonged restrictions imposed on non-essential services to control the spread of COVID-19 pandemic. Global services PMI declined sharply to a record-low of 24.0 in April 2020, from revised 36.8 in March 2020, to stay below the neutral 50.0 mark for the third successive month, due to the impact of the COVID-19 pandemic.