Manufacturing in June records setback; services expand

Sri Lanka’s manufacturing activities continued to underperform in the month of June while services activities recorded a healthy performance.
Manufacturing PMI recorded an index value of 47.3 in June 2023, indicating the setback in manufacturing activities. This setback was contributed by the subdued performance observed in all the sub-indices.

Production and New Orders declined, mainly driven by the manufacture of textile and apparel sector. As mentioned by many respondents, continued subdued global demand was the major reason for this decline. However, some improvement in New Orders and Production was observed in the manufacture of food and beverages sector, with the reduction of prices by some manufacturers to increase the market demand. Employment and Stock of Purchases also decreased in line with the decline in New Orders and Production. Many respondents mentioned that they tend to replace only the essential staff and also to maintain a minimum raw material stock. Meanwhile, Suppliers’ Delivery Time remained shortened in June 2023, with the low order volumes during the month.

Expectations for manufacturing activities for the next three months indicated an improvement, anticipating a gradual recovery in economic conditions.

Meanwhile, the services sector PMI increased further in June 2023, recording an index value of 56.7, the highest reading since January 2022. This was led by the increases observed in New Businesses, Business Activities and Expectations for Activity. Nevertheless, Backlogs of Work continued to decrease, while employment remained unchanged during the month. 
New Businesses increased in June 2023 compared to May 2023, particularly with the increases observed in the financial services, other personal services, insurance and professional services sub-sectors. 
Business Activities experienced a continuous growth in June 2023, with improvements across most of the sub-sectors. Accordingly, the financial services sub-sector showed improvements, driven by the gradual decrease in market interest rates. In addition, the other personal services, education and professional services sub-sectors also exhibited positive developments during the month. Nevertheless, the wholesale and retail trade sub-sector experienced a continued decline in business activities, though there was some improvement in clothing and footwear businesses, due to the Hajj season. 

Backlogs of Work also decreased at a higher rate during the month, while Employment remained unchanged from the level reported in May.
Expectations for Business Activities for the next three months continued to improve in June, amid the anticipated improvements in economic activities driven by policy rate cuts, strengthening of Sri Lanka rupee, relaxation of import restrictions and moderation of inflationary pressures.