PMI shoots up in October as virus related restrictions ease

• Both manufacturing and services sectors cite rising costs as a major concern 
• Expectation on future business improved amid prospects of easing of prices, supply chain bottlenecks and strong festive demand

Sri Lanka’s manufacturing and services activities measured by the Purchasing Managers’ Index (PMI) gained substantially in October after the economy was unshackled from the remaining virus-related restrictions from the beginning of the month giving more wiggle room for economic actors to improve business operations.  

Sri Lanka recorded a manufacturing PMI of 60.4 index value in October, up by robust 6.1 index points and services PMI of 57.9 index value, 5.7 index points higher from September. The PMI is a widely used gauge of economic dynamism and an index value above 50 indicates an expansion of activity from the previous month and an index below 50 reflects a contraction. 

After contracting in August due to fresh restrictions on economic activities, both manufacturing and services activities recovered in September amid the soft nature of the lockdowns which had limited impact on business activities, except on the ones which require closer human interaction. 

The lifting of lockdowns from October 1 enabled businesses across sectors to add more steam and re-open the ones which remained shuttered. 

“Significant increases were observed in new orders and production, particularly in the manufacture of food & beverages and textiles & apparel sectors during the month,” the Central Bank said releasing its PMI readings for October.  

While food & beverage producers witnessed increased demand ahead of the upcoming festive season, the textiles & apparel sector received healthy export orders in October as signalled by the export earnings of the two sectors through September.

While the employment sub-index also improved in October with the easing of restrictions, the respondents from the textiles & apparel sector had said their production levels could have been higher had more employees been available. 

Some respondents in the food & beverage sector had increased purchases due to supply side concerns while the suppliers’ delivery time lengthened at a higher rate in the month. 
The continuous increase in the cost of imported raw materials, mainly due to rising global commodities prices and the dollar shortage domestically, was highlighted as a major concern by most respondents. 

Meanwhile, the improvement in service sector activities was mainly underpinned by the increases in new businesses, business activities and expectations for activity, propelling the index value to its strongest pace of expansion since March 2021. 

Services sector was the most affected from the pandemic as it involves mostly activities, which required close proximity to people, though some activities which can be done remotely shifted into digital platforms enabling their continuation after the initial setback seen at the beginning of the pandemic. 

As a result, services such as financial, transportation, education, insurance, professional services, real estate and telecommunication sub-sectors powered new businesses in October. 
Similar to manufacturers, what concerned the most in the services sector was the, “ increasing input costs, and supply constraints and delays amidst import related issues. Further, respondents in freight forwarding companies also expressed their concerns over the adverse impact on export volumes due to capacity limitations and increasing freight charges”. 

While the employment sub-index continued to remain in the negative due to retirements and voluntary resignations exceeding new recruitments, backlogs of work dropped for the first time since March 2021 as majority staff returned to office after the easing of travel restrictions. 

Meanwhile, the expectations for business in both manufacturing and services sectors improved due to prospects of easing prices, supply chain bottlenecks and strong festive demand expected following the easing of virus-related restrictions.