PMI hits all-time low due to COVID-19 response

• Closure of most companies in mid-March hits Manufacturing and Services
• Expectations for next three months also low, backlogs reduce
• Employment in services sector declines

As expected, manufacturing activities significantly contracted due to adverse impacts of the COVID-19 pandemic, with the Purchasing Managers Index (PMI) hitting an all-time low index value of 30.0 in March with a decline of 23.6 index points from February.

The decline of manufacturing PMI was mainly driven by the significant contraction of Production and New Orders sub-indices of PMI reflecting the significance of the COVID-19 pandemic to Sri Lankan manufacturing sector.

The significant decline in Production was due to the closure of manufacturing companies due to curfew since mid-March 2020. Further, New Orders and Stock of Purchases contracted significantly, in line with the closure of companies and the halting of production process.

PMI hits...

Moreover, the orders received at the beginning of March from USA and Europe markets, particularly textile and wearing apparel orders, were subsequently cancelled with the spread of the virus in those countries.

The lengthening of Suppliers’ Delivery Time usually indicates higher demand for materials with the expanding manufacturing activities, whereas the increase of Suppliers’ Delivery Time during March was due to the delays in shipments and local logistics with the impact of the COVID-19 pandemic.

In line with these developments, manufacturing activities recorded an overall contraction during the month of March 2020.

The manufacturers cautioned that the COVID-19 outbreak would disrupt the global supply chain as well as demand. Accordingly, overall expectations for manufacturing activities for the next three months deteriorated significantly.

Services sector PMI declined significantly to 32.0 in March 2020 recording the lowest index value in Services PMI since May 2015, reflecting the adverse impact of the COVID-19 pandemic on the services sector of the economy. All sub-indices of Services PMI except for Backlogs of Work remained significantly below the threshold level of 50.0, indicating the widespread impact of this pandemic on Services activities.

New Businesses and Business Activities declined mainly in services related to tourism industry such as hotels, travel agents, and recreation activities. In addition, domestic travel restrictions imposed in line with the lockdown of the country and slowdown in cargo handling have affected negatively on the business activities of the transportation sub sector.

Even though the wholesale and retail trade sector observed an increase in demand with stockpiling, the demand could not be catered due to the issues with staff availability and delivery networks.

Expectations for Activity sub index declined to its all-time low in March 2020 as respondents were concerned about the expected fall in consumer demand emanating from the reduction in discretionary spending and personal income, import restrictions and fall in tourist arrivals.

Meanwhile, Employment in Services sector continued to decline due to discontinuation of contractual and casual employees amidst the freeze of new recruitments with the decline in New Businesses, Business Activity and Expectations for Activity.

However, a significant increase in Backlogs of Work sub index was observed across the Services sector in March 2020. This was primarily due to carrying out essential business activities with a minimum number of employees particularly in financial services, telecommunication, human health, and transportation subsectors.