Seasonality salvages March PMI blunted by macroeconomic and supply chain challenges

• Expectations for next 3 months significantly deteriorate on political instability, public unrest and rising costs 

The Purchasing Managers’ Indices (PMI) for both manufacturing and services continued to expand during March, but the sub-indices reflected the brewing macro-economic challenges, which spilled into political instability and public unrest towards the latter part of the month.  According to the Central Bank, the manufacturing PMI for March recorded an index value of 57.8 points, up from 52.5 points predominantly due to the seasonality, which demands heightened activities in almost every sector ahead of the
New Year. “This increase was mainly attributable to the improvements observed in Production, 

New Orders and Employment sub-indices following the seasonal demand,” the Central Bank said releasing the index for the month. 

“The increase observed in New Orders and Production sub-indices, particularly in the manufacture of textiles & apparel sector, was due to cover-up arrangements ahead of the seasonal holidays,” it added.

However, the prolonged fuel shortages and daily power cuts added to the woes of the manufacturers who were already grappling with supply chains bottlenecks both in the local and international chains which were exacerbated by persistent difficulties in opening letters of credit, according to the respondents. 

While the power cuts interrupted their production lines, the fuel shortages had disrupted transportation schedules, including their staff. 

These issues were repeatedly flagged by business chambers in the run up to the March 7 rupee float, which worsened the crisis by sending the production and cost of living through the roof endlessly. 
The prices across all goods and services are being adjusted on a daily basis by manufacturers and suppliers as they fully pass on the effect of the rupee weakness, which fell by more than 60 percent since the float took place, forcing Sri Lanka into a hyper inflationary era which the country has never seen before.  Meanwhile, the services PMI recorded an index value of 51.3 points, slightly decelerating from 51.8 points in February.  

In PMI, an index value of above 50.0 indicates an expansion of the activity while a value below 50.0 denotes a contraction. The 50.0 level indicates a neutral level from the previous month. 

The services activities also reflected some seasonality in the run up to the New Year although were buffeted by the increased challenges faced by them compared to their manufacturing counterparts. 

“Accordingly, financial services, transportation, insurance, real estate, and IT programming consultancy sub-sectors reported improvements during the month”, the Central Bank said.  “Nevertheless, the operational cost pressures, prolonged power cuts and supply shortages related to the gas, fuel and other inputs negatively affected the business operations of most of the sub- sectors, while rise in cost of living as well as Russia-Ukraine war weakened the demand related to several other services sub-sectors,”it added.  

Mirror Business earlier reported that these conditions would reflect in the January -March earnings season, which got delayed by the prolonged market closure. 

 According to economic analysts, the worst is yet to come for businesses as the tighter liquidity, massive jump in production cost and financing cost on top of impaired demand for goods and services could potentially sink the cumulative earnings or be confined to a minimum of a single digit growth in the incumbent quarter.  Meanwhile, the respondents of both manufacturing and services sectors expect the outlook to deteriorate to fresh lows in the coming three months with the services sector outlook dipping for the first time since August 2021.