PMI takes major hit in Oct. on COVID-19 resurgence

• Both manufacturing and service indexes decline significantly but remain higher than all-time low in March
• Sectors report higher job losses, bigger backlogs and reduced hope to future biz 
• Many companies hampered by localised lockdowns 
• Expectations for biz activities in next three months also drops

Manufacturing and services sectors took a strong hit in October with the Purchasing Managers Index (PMI) declining significantly amidst heightened job losses, increased backlogs and reduced expectations of future business activities due to the second COVID-19 wave, the Central Bank said yesterday.   

Manufacturing activities indicated subdued performance in October due to the adverse impacts of the second wave of the COVID-19 pandemic that erupted in the country in early October, the report said. 

Accordingly, manufacturing PMI declined to 40.3 in October with a significant decline in Production, New Orders, Employment, and Stock of Purchases sub-indices, particularly in the manufacturing of wearing apparel and food & beverages sectors.

 PMI hit an all-time low index value of 30.0 in March with a decline of 23.6 index points from February.

The Production of all manufacturing sectors declined significantly together with the decline of Employment in October. Many respondents in the manufacturing of food & beverages and textiles & wearing apparel sectors highlighted that their factory operations were largely disrupted due to localised curfews imposed during the month to contain the spread of COVID-19. 

Further, they mentioned that some employees were reluctant to report to work due to fear of the virus, while many employers refrained from employing their full workforce following health authority guidelines, causing a significant reduction of availability of employees.

Further, the Stock of Purchases sub-index also decreased at a higher pace in line with the decline in Production and New orders, as well as increased uncertainty. The Suppliers’ Delivery Time sub-index lengthened at a higher pace, where many respondents highlighted that they experienced a considerable delay in port/custom clearance.

The sub-index of Expectations for manufacturing activities for the next three months declined significantly due to the ongoing second wave of the spread of the COVID-19 pandemic, particularly in the Western Province. 

Services sector PMI declined to 41.8 in October reflecting the adverse impact of the second wave of the COVID-19 pandemic on the services sector of the economy, which was gradually recovering over the past four months from the impact of first wave. This contraction was underpinned by the declines observed in all sub-indices of services PMI except for the index of backlogs of work.

New businesses, particularly in financial services and insurance subsectors, declined in October compared to the previous month.

Business activities also declined in October, mainly in wholesale and retail trade, transportation, and accommodation, food and beverage sub-sectors, with the localised curfew imposed to contain the spread of the second wave of COVID-19 pandemic. Further, business activities related to insurance and educational services subsectors also saw declines during the month. Moreover, 59.3% of the respondents cited that the decline in business activities is attributable to the negative impact of the second wave of the COVID-19 pandemic on demand.

As cited by several respondents, backlogs of work increased in October with the disruptions to their business activities due to the absence of employees who reside in lockdown areas. In addition, reluctance of employees to report to work and unwillingness of employers to employ their full workforce due to pandemic related issues have also affected the smooth operation of business activities during the month. 

Employment declined in October owing to non-extension of work agreements of contracted employees amidst a halt in new recruitments.

Meanwhile, expectations on future business activities also declined in October due to the pessimism prevailing from the second wave of COVID-19 in the country.