Mixed trends in manufacturing and service sectors in July

 Source: Central Bank of Sri Lanka

• All sub-indices show subdued performance in manufacturing sector
• Textile and apparel sector struggles with lack of new orders
• New businesses, boost in biz activities, employment, expectations increase in service sector
• Employment rises after 15 months due to ongoing recruitments 
• Surge in tourist arrivals boosts accommodation-related services, while financial services sub-sector sees improvement due to decreasing market interest rates
• Next 3 months show marginal improvement in manufacturing activities, while positive outlook seen for biz activities in service sector

The Purchasing Managers’ Index (PMI) extended its decline in July with an index value of 44.6, hinting at delayed economic recovery, whilst the services sector remained strong at 59.5, highlighting its steadfast growth trajectory.

The Central Bank said the dip in both production and new orders was primarily due to several factors, including a decrease in market prices. This decline occurred despite efforts to reduce prices. Notably, manufacturers in the textile and wearing apparel sector faced challenges; as they grappled with the lack of new orders stemming from fierce competition in the global market and unfavourable demand conditions. 

Alongside the decline in new orders and production, employment and stock of purchases also experienced a decrease throughout the month. Companies were found to be primarily filling essential vacancies; leading to a reduction in overall employment numbers in July. Meanwhile, suppliers’ delivery time remained shortened compared to the previous month.

Although the immediate manufacturing outlook appears challenging, the Central Bank said the expectations for the sector over the next three months indicated a marginal improvement, taking into consideration the current economic environment.

On a contrasting note, the services sector demonstrated resilience underscoring the ongoing expansion in services activities. This growth; was fuelled by increases in new businesses, business activities, employment, and expectations for activities. 

The only exception was backlogs of work, which continued to contract during the month.

Accommodation-related services, financial services, other personal services, and professional services sub-sectors saw a prominent rise in new businesses. July also witnessed consistent growth in business activities across multiple sub-sectors. 

It said the surge in tourist arrivals boosted accommodation-related services, while the financial services sub-sector saw improvement due to decreasing market interest rates. Personal services and professional services sub-sectors also noted positive developments. 

In a significant turn of events, the Central Bank said employment within the services sector registered an increase, marking the first upward movement in 15 months, attributed to ongoing recruitments at various companies. While backlogs of work continued to decrease, the rate of contraction slowed down during the month.

Expectations for business activities in the services sector over the next three months remained positive due to the prevailing favourable economic conditions.