Sri Lanka’s manufacturing activity mired in unyielding decline due to hostile policies

• Manufacturing PMI at 46.2 while services crossed neutral level to expand modestly in May 

The Purchasing Managers’ Index (PMI) for May showed mixed performance of manufacturing and services activities reflecting changing dynamics in the broader economy although it appears to be still in decline amid persistently elevated prices and interest rates which undermine both business and consumer spending. 
The manufacturing sector PMI recorded an index value of 46.2 for May, indicating a contraction in activity levels although reflecting a moderation from a much deeper contraction seen in April, which recorded an index value of 34.7. 
Meanwhile, the services activities flipped into the expansionary territory with the index recording a value of 53.5 leaving behind the brief contraction in April which was reflected by an index value of 49.6. 
In PMI, expansion in activity versus a decline is split at an index value of 50.0. 
The manufacturing activity was continued to be weighed down by the decline in production and new orders sub-indices mainly coming from the food and beverage sector as the sentiments remained poor as people lost purchasing power since last year when the economy fired run-away inflation, prompting authorities to curb demand through a multitude of demand destruction policies. 
The authorities however have signalled they were willing to dial back some of those policies as the Central Bank a fortnight ago cut policy rate by 250 basis points after nearly two years of
monetary tightening. 
In the manufacturing sector, apparel continued to remain weak due to demand slowdown in key global markets and also due to loss of market share to competitors.
Meanwhile in the service sphere business activity in sectors of personal activity, insurance, professional services and human health exhibited some improvements in May from a month earlier.  
But the wholesale and retail trade has continued to disappoint due to anemic consumer demand.

Business activities related to accommodation and food and beverage declined amid themoderation seen in tourist arrivals in May.  Expectations for business activities for the next three months improved substantially in May driven by the positive sentiments on rebounding of economic activity due improvements in demand conditions amid policy rate cuts and recent appreciation of the rupee.