Prospects for manufacturing and services are gloomy for the next three months: PMI survey

The country’s manufacturing and services sectors posted mixed results in May, but the duo’s outlook remains bleak according to the latest Purchasing Managers’ Index (PMI).

The manufacturing PMI registered an index value of 50.3 in May 2022, with an increase of 13.9 index points compared to the seasonally low value of April.

“The slight rise in the PMI is mainly due to the recovery in employment and the extension of the delivery time from suppliers,” the central bank said.

He said that while longer lead times from suppliers generally reflect expanding manufacturing activities, in this case it was mainly due to supply-side barriers resulting from delays in clearing imported goods and fuel shortage.

In addition, employment rose slightly during the month, particularly in the textile and clothing manufacturing sector, partly due to inter-industry employee movements.

CBSL said new orders, production and purchase inventory remained contracted month-over-month, but at a slower pace, indicating subdued performance from manufacturing activities in May 2022.

“The lackluster performance in production and new orders was particularly seen in the food and beverage manufacturing sector. The contraction in new orders was partly due to the end of the festive month,” CBSL said.

In addition, some respondents mentioned that deteriorating purchasing power due to high inflation, coupled with cautious consumer spending amid prolonged uncertainty over economic hardship, led to lower demand, particularly for non-essential goods. Additionally, the production process of the manufacturing sector has been hit hard by numerous supply-side constraints, including a shortage of materials and the ongoing power outages.

The inventory of purchases decreased mainly due to the unavailability of the quantities required on the domestic market and difficulties in opening letters of credit for the import of materials, forcing many producers to significantly slow down their production.

“For the next three months, overall expectations for manufacturing activities continued to deteriorate from the previous month due to the uncertain economic environment prevailing in the country,” CBSL said.

The services PMI index fell slightly to an index value of 42.4 in May 2022, indicating a contraction in services activities for the second month in a row.

“This was due to declines in the new business, business activity, employment and activity expectation sub-indices,” CBSL said.

New businesses declined further in May 2022 compared to April 2022, particularly with declines seen in the accommodation, food service, wholesale and retail trade, real estate and business subsectors. ‘education.

CBSL said the decline seen in business activity in May was mainly due to supply-side constraints, including extended power outages and energy shortages. In addition, weak demand due to rising prices and uncertainties in the country also contributed to the decline in business activities.

Civil unrest at the beginning of the month also had a negative effect on business activities. Thus, the wholesale and retail trade, other personal activities and transportation sub-sectors recorded significant declines during the month. In addition, business activities in the accommodation, food and beverage subsector have also been affected by the continued decline in tourist arrivals.

Employment continued to decline in May due to layoffs related to the decline in activity, retirements and resignations. Power outages, supply shortages and transportation difficulties led to a further increase in work backlogs during the month.

“Expectations for business activities for the next three months deteriorated further in May due to supply-side constraints, inflationary pressure and economic and political uncertainties in the country,” CBSL said, adding that “Some respondents were also concerned about rising interest rates and taxes.” , while some were optimistic about progress in talks with the IMF and stabilization of the exchange rate.

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