Seasonal demand drives up Sri Lanka’s manufacturing sector in March - Opportunity Sri Lanka
Seasonal demand drives up Sri Lanka’s manufacturing sector in March

Seasonal demand drives up Sri Lanka’s manufacturing sector in March

The Morning: Following the seasonal pattern in manufacturing activities, the manufacturing Purchasing Managers’ Index (PMI) increased on a month-on-month basis to an index value of 57.8, yet at a slower rate than the previous years, according to the Central Bank of Sri Lanka (CBSL).
This increase was mainly attributable to the improvements observed in the sub-indices of Production, New Orders, and Employment, following the seasonal demand.
The increase observed in the New Orders and Production sub-indices, particularly in the manufacture of textiles and apparel sector, was due to cover-up arrangements ahead of the seasonal holidays. Though the New Orders sub-index in the manufacture of food and beverage sector increased in March 2022, catering to the New Year demand, the Production and Stock of Purchases sub-indices related to the same remain subdued, mainly due to supply-side constraints.
Many respondents highlighted that fuel shortages amidst scheduled power cuts disturbed their production plans in many aspects, from material supply to transportation of workers. Suppliers’ delivery time also lengthened on a month-on-month basis.
Moreover, the Stock of Purchases sub-index declined due to unavailability of required quantities in the domestic market and difficulties in opening letters of credit for importing materials.
Overall expectations for manufacturing activities over the next three months deteriorated significantly compared to the previous month, due to the prevailing uncertain environment in the country.
The services sector PMI recorded an index value of 51.3 in March 2022, indicating an expansion across the services sector underpinned by the increases observed in the New Businesses, Business Activities, and Employment sub-indices. The New Businesses sub-index rose at a higher pace in March 2022 compared to February 2022, particularly with the improvements observed in financial services, other personal activities, telecommunication, and insurance sub-sectors.

Following the seasonality, the Business Activities sub-index continued to grow in March, yet at a slower pace. Accordingly, financial services, transportation, insurance, real estate, and IT programming consultancy sub-sectors reported improvements during the month.
“Nevertheless, the operational cost pressures, prolonged power cuts, and supply shortages related to the gas, fuel, and other inputs negatively affected the business operations of most of the subsectors, while rise in cost of living as well as the Russia-Ukraine war weakened the demand related to several other services sub-sectors,” Central Bank stated.
Accordingly, business activities particularly related to wholesale and retail trade, accommodation, food and beverage, human health, and education sub-sectors recorded deterioration during the month. Employment recorded an increase in March due to new recruitments done primarily to meet the seasonal demand. Meanwhile, Backlogs of Work continued to decline at a slower pace during the month.
“Expectations for Business Activities for the next three months deteriorated for the first time since August 2021 with the growing uncertainties and challenges with prolonged power cuts, supply shortages of fuel, gas and other inputs, import-related issues and restrictions amid foreign exchange shortage, sharp increases in input prices with allowing flexibility in the exchange rate, and political and social unrest in the country,” the statement further noted.

OSL take:

Sri Lanka’s manufacturing and exports sectors have have been on a steady growth path in the past few years, even amidst the pandemic lockdowns in 2020 and 2021. The many trade agreements as well as concessions enjoyed by the country have also helped boost Sri Lanka’s manufacturing and exports sectors. Despite the economic difficulties faced by the economy at present, the country’s manufacturing sector continues to move forward while the expansions in the industry have opened many new opportunities. Given the economic expansion in the country, foreign businesses/investors could explore the growing business/investment opportunities in Sri Lanka’s manufacturing and exports sectors.

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Article Code : VBS/AT/28042022/Z_5

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