Manufacturing and services activities slow in April; expectations for next 3 months deteriorate

Sri Lanka’s manufacturing and services activities slowed in April, in line with the seasonal pattern but the COVID-19 third wave lockdowns and other restrictions appear to be putting a serious damper on the expectations for the next three months compared to the previous month.

Accordingly, the manufacturing PMI contracted to 44.3 in April, with a decline of 22.7 index points from March 2021. An index value below 50 indicates a contraction.

This was mainly due to the significant declines in Production, New Orders, Stock of Purchases and Employment sub-indices compared to the significant expansion recorded in March. The New Orders significantly declined with the end of the Sinhala and Tamil New Year seasonal demand, particularly in the manufacture of food and beverages sector.

Meanwhile, the Production, especially in the manufacture of food and beverages and textile and wearing apparel sectors declined significantly due to the lesser number of working days in the month and the drop in employment, especially due to the increase in unauthorised absentees following the new year holidays.

Further, the resurgence of the COVID-19 pandemic in the latter part of April prevented many employees from reporting to the workplaces and refrained some employers from employing their entire workforce.

Meanwhile, the Stock of Purchases contracted in line with the decline in New Orders and Production and increased uncertainty. Many respondents, particularly in the manufacture of food and beverages sector, emphasised that they reduced their purchases with the end of the seasonal demand.

The Suppliers’ Delivery Time lengthened at a higher pace in April 2021, mainly due to the delays in receiving imported and local supplies.

Further, many respondents highlighted that the freight rates remained at elevated levels, increasing the cost of imported raw materials, which in turn adversely affected their profit margins. The manufacturers cautioned that the uncertainty over the third wave of the COVID-19 pandemic would hamper the manufacturing activities in the country.

Accordingly, the overall expectations for manufacturing activities for the next three months deteriorated significantly compared to the previous month.

Meanwhile, the services sector PMI dropped to 48.9 in April, reversing the growth momentum observed in the services sector for four straight months. This decline was underpinned by the deteriorations observed in new businesses, business activities, employment and expectations for activity. New businesses and business activities in the services sector decreased in April 2021, particularly with the declines observed in transportation, education and insurance sub-sectors. 

Moreover, other personal services sub-sector also experienced a decrease in business activities in April 2021.
Extensive holidays during the month of April amidst the impact from the onset of the third wave of the COVID-19 pandemic towards the latter part of the month led this moderation of business activities in the services sector.

Nevertheless, accommodation, food and beverage and wholesale and retail trade sub-sectors saw improvements in April 2021, mainly due to the surge in demand for goods and services during the Sinhala and Tamil New Year season.

Employment also declined due to retirements amid absence of new recruitments in April 2021.

Backlogs of work increased in April 2021, after declining for two consecutive months due to localised lockdowns and implementation of roster systems amid the surge in COVID-19 cases.

Subsequent to increasing for five month in a row, expectations for business activities for the next three months dropped in April 2021, in line with the adverse sentiments instigated by the outbreak of the third wave of the COVID-19 pandemic in the country.