Services PMI turns positive in Dec. 2020 after 2 months

• Both services and manufacturing benefit from normalisation after second virus wave 
• Employment increases in Dec. 2020 as new orders pick up 
• Expectations for future business activities improve

The Services Purchasing Managers Index (PMI) returned to positive growth in December after two months as economic activity recovered somewhat from the second COVID-19 wave with Manufacturing also normalising, the Central Bank said yesterday. 

Benefitting from the gradual normalising of economic activities in the country, the Manufacturing PMI continued to increase in December 2020, on a month-on-month basis, recording an index value of 61.2. This was mainly attributable to the increases observed in Production, New Orders, Employment, and Stock of Purchases sub-indices.

The significant increase in Production and New Orders sub-indices, particularly in the manufacture of food and beverages sector, has mainly contributed to the improvement in the overall index.

Meanwhile, Employment sub index also increased during the month of December 2020. Some respondents in the manufacture of food and beverages and textiles and wearing apparel sectors highlighted that they could better utilise employees amidst the improved factory operations with increased demand.

The Stock of Purchases sub-index increased significantly in line with the expansion in New Orders and Production, as well as with the intended accumulation of stocks anticipating supply chain disruptions in coming months, particularly due to upcoming Chinese New Year holidays. 

Further, the Suppliers’ Delivery Time sub-index lengthened at a slower pace in December. Many respondents mentioned that their shipments were rescheduled, causing considerable delays in arrival/clearance of required materials, mainly due to the continuous delays at the Port of Colombo.

Expectations for manufacturing activities in the next three months improved further with the expectation for the normalisation of economic activities within the country as well as in major export markets.

Reaching 55.6, Services PMI returned to the growth territory in December 2020, after recording index values less than the threshold level of 50.0 for two consecutive months. This increase was led by the expansions observed in new businesses, business activities, backlogs of work and expectations for activity compared to November 2020, indicating a recovery in the services sector, which was affected by the second wave of COVID-19 pandemic.

New businesses increased further in December 2020, particularly with the improvements observed in financial services and insurance subsectors.

Business activities in the services sector increased in December 2020 after declining for two consecutive months. Accommodation, food and beverage sub-sector saw an improvement during the month mainly due to the growth in domestic tourism during the holiday season. Further, business activities in transportation, and wholesale and retail trade sub-sectors expanded owing to relaxation of travel restrictions to some extent during December 2020. 

Moreover, financial services and other personal services sub-sectors also experienced an increase in activities in December 2020. However, respondents in freight forwarding and import trade cited their concerns over import restrictions.

Employment sub-index increased reflecting a moderation of decline in employment in December 2020 since some firms have started to hire new employees in line with the rise in business activities.

Backlogs of work slowed down in December 2020 indicating comparatively lesser disruptions to business activities compared with the previous month. Expectations on future business activities increased notably in December 2020 with increased optimism on the recovery of economic activities that were affected by the second wave of COVID-19 pandemic.