Crises slow manufacturing, service sector growth in February

Crises ranging from shortage of dollars and fuel and electricity supplies, have slowed the growth of the manufacturing and service sectors in February as per the Purchasing Managers’ Index (MPI) compiled by the Central Bank.

It said the Manufacturing PMI remained expanded, recording an index value of 52.5 in February. This was a decrease of 6.2 index points compared to January.

The services sector PMI recorded an index value of 51.8 in February indicating a marginal growth across the services sector. This was a decrease of 5.7 index points in comparison to January. The PMIs for manufacturing and services sectors grew at a slower pace in January as compared to December last year.

CBSL said the Manufacturing PMI’s improvement in February was mainly attributable to the continued expansion in new orders. However, production, stock of purchases and employment declined while suppliers’ delivery time lengthened on a month-on-month basis.

An expansion in new orders, particularly in the manufacture of food and beverage, was witnessed in February, ahead of Sinhala and Hindu New Year season. 

However, the production declined on a month-on-month basis, especially in the manufacture of food and beverage, and textiles and wearing apparel sectors, following the seasonal pattern as there were fewer working days in February, and due to supply-side constraints. 

Moreover, the stock of purchases declined due to supply side impediments.

Many respondents highlighted that it was difficult to acquire imported raw materials and packing materials due to delays in opening letters of credit. For the next three months, the expectations for manufacturing activities remain at elevated levels anticipating continuous improvements in economic conditions locally and globally.

CBSL said the services sector PMI’s marginal increase in February was underpinned by the increases observed in new businesses, business activities and expectations for activity sub-indices. 

New businesses rose at a slower pace in February compared to January, particularly with the improvements observed in financial services, professional services, real estate, telecommunication and transportation sub-sectors.

Business activities continued to grow in February, even though at a slower pace, with the improvements observed in several sub-sectors.

Accordingly, financial services, education, professional services, other personal activities, real estate and transportation sub-sectors reported improvements during the month. In addition, business activities in the accommodation, food and beverage sub-sector also recorded a marginal growth amid the steady increase in tourist arrivals despite the disturbances occurring from disruptions to fuel and electricity supplies during the latter part of the month.

Nevertheless, business activities related to the wholesale and retail trade sub-sector observed a deterioration during the month. Employment fell slightly in February for the first time after three months of increase due to retirements and increasing number of resignations. Meanwhile, Backlogs of Work continued to decline at a higher pace during the month.

CBSL said expectations for Business Activities for the next three months improved in February, yet at a much slower pace, as the wholesale and retail trade sub-sector expects their business outlook to deteriorate due to cost pressures and supply shortages following the float of the exchange rate and the imposition of import restrictions. 

Further, the uncertainties associated with fuel, electricity and LP gas supplies are also negatively affecting most of the sub-sectors, CBSL added.