Sri Lanka Purchasing Managers’ Index up further in July

Manufacturing PMI increased further in July 2021 recording an index value of 57.8 with an increase of 7.4 index points compared to June 2021. This was mainly attributable to the increases observed in New Orders, Production, Employment, and Stock of Purchases sub-indices. The significant increases in New Orders, Production, Employment, and Stock of Purchases sub-indices, particularly in the manufacture of textile & wearing apparel and food & beverage sectors, have mainly contributed to the considerable improvement in the PMI. Some respondents in those sectors highlighted that they received higher export orders, especially from the Europe, with the gradual normalization of economic activities, and they resumed new recruitments with the expectation of future demand and following the progress of the COVID-19 vaccination programme.

Meanwhile, the Stock of Purchases sub-index increased in line with the expansion in New Orders and Production while the Suppliers’ Delivery Time continued to lengthen in July 2021. Many respondents stressed that delays in the opening of letters of credit and delays in settlement of foreign payments affect adversely the supply chain of importing raw materials. This has caused disturbances for their production schedules. The manufacturers cautioned that the uncertainty over the rapid spread of the COVID-19 virus would hamper the manufacturing activities in the country. Accordingly, overall expectations for manufacturing activities for the next three months deteriorated significantly compared to the previous month, yet remained above the neutral threshold.

Signaling a further expansion of Services activity, Services PMI increased further to an index value of 55.7 in July 2021. This increase was driven by the increases in new businesses, business activity, backlogs of work and expectations for activity. New businesses increased in July 2021 compared to June 2021 with the improvements observed in financial services, insurance, transportation, telecommunication and real estate sub-sectors. Business activities across most of the sub-sectors increased in July in line with the relaxation of the travel restrictions. Accordingly, financial services sub-sector reported a huge improvement during the month. Transportation sub-sector also saw a considerable progress with growths observed in passenger transportation and freight volumes. Further, human health, insurance and telecommunication sub-sectors also improved during the month.

Meanwhile, wholesale and retail trade, and other personal activities sub-sectors also reported positive developments owing to recommencement of business operations and recovery in demand following the gradual normalization of economic activities. Employment continued to fall at a slower pace as retirements and resignations exceeded the number of recruitments carried out during the month. Backlogs of work increased, yet at a slower pace, in July.

Expectations for business activities for the next three months continued to increase in July with the gradual normalization of economic activities. However, expectations of some respondents were rather pessimistic as per the fast spread of the third wave of COVID-19, import restrictions, delays in opening of letters of credit and increase of input costs.