Sri Lanka’s manufacturing and service activities fall in June 2022

Sri Lanka’s manufacturing and service activities drop in June 2022

Monday, July 18, 2022, 9:58 a.m. SL time, ColomboPage News Desk, Sri Lanka.

July 18, Colombo: Manufacturing and services activities in Sri Lanka declined in June 2022, the Central Bank’s Purchasing Managers’ Index (PMI) survey released last Friday (July 15) showed.

The manufacturing PMI registering an index value of 44.1 declined by 6.2 index points from the previous month in June 2022, indicating a decline in manufacturing activities on a monthly basis.

This is explained by the drop in all sub-indices except for supplier delivery time, according to the Central Bank report.

New orders fell particularly in the food and beverage manufacturing sector, partly due to deteriorating purchasing power in a highly inflationary environment.

Many export-oriented manufacturing companies also saw lower-than-expected orders as overseas buyers worried about the fragile political and economic situation in the county and possible disruptions in order fulfillment.

The drop in production levels in June 2022 compared to the previous month was mainly due to the shortage of materials and the persistent shortage of energy.

Fuel scarcity has affected production directly, as well as indirectly through transportation difficulties.

Additionally, the employment sub-index recorded a month-over-month decline, particularly in the food and beverage manufacturing sector.

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.

Supplier delivery time further lengthened during the month at a higher rate, mainly due to delays in customs clearance of imported goods, COVID-related blockages in China, vessel delays and shortage of diesel which has affected domestic transport.

For the following three months, the overall expectations for manufacturing activities continued to deteriorate from the previous month due to the uncertain economic environment prevailing in the country, supply-side constraints and a possible weakening of external demand.

The services PMI fell further to an index value of 40.3 in June 2022, indicating a contraction in services activities for the third consecutive month.

This was due to declines in the new business, business activity, employment and business forecast sub-indices.

New businesses declined further in June 2022 compared to May 2022, particularly with declines seen in the transportation, accommodation, food service and education sub-sectors.

Ongoing supply-side constraints, including severe fuel shortages, led to a further decline in business activity in the services sector in June.

In addition, many respondents pointed out that the moderation in consumer spending amid strong inflationary pressures, rising interest rates, transportation issues and pessimism about the economic outlook further weakened demand, particularly with regard to discretionary elements.

In this context, the sub-sectors of other personal activities, transportation, wholesale and retail trade, accommodation, restaurants and education recorded sharp declines during the month.

Meanwhile, the continued decline in tourist arrivals in Sri Lanka, fueled by adverse travel advisories, has also negatively affected business activities related to several sub-sectors.

Employment continued to decline in June due to the freeze on new hiring, contract expiries, retirements and resignations.

Due to shortages of fuel and other supplies, transportation difficulties faced by staff and power outages, backlogs increased further during the month.

Expectations for business activities for the next three months slumped further in June due to continued unfavorable supply and demand conditions amid continued and heightened uncertainties in the country.

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