Construction industry struggles in July amid hints of recovery in coming months

• PMI index value for construction industry at 43.2 in July indicating contraction
• Survey respondents say tendering opportunities centre on foreign-funded projects, while private clients wait for further price reductions before embarking on new endeavours
• Construction firms optimistic about next 3 months, with expectations of economic recovery, drop in interest rates, lower material costs, ongoing negotiations with Govt.-funded projects 

Sri Lanka’s construction industry continued to face headwinds in July 2023, amid lack of new projects with a total activity index value of 43.2.

The Central Bank said industry players have grappled with challenging conditions, but there are glimmers of hope on the horizon. 

One notable trend has been the cautious optimism arising from a gradual decline in material costs. While many firms have remained dormant in the face of the industry’s challenges, ongoing projects have found a more conducive environment due to this cost relief. 

The Statistics Department of the Central Bank has been conducting the PMI survey for construction activities since June 2017, delivering key industry insights to the Central Bank, assisting the policy formulation process

Additionally, some Government-funded projects, which had been temporarily suspended, cautiously resumed operations on a modest scale during the month. The new orders component showed contraction in July, albeit at a slower rate. 

Respondents noted that tendering opportunities primarily revolved around foreign-funded projects, while private clients appeared to be waiting for further reductions in costs before committing to new construction ventures. 

Sub-contract openings have also been scarce, as firms with existing projects on hand possess surplus capacities. 

On the employment front, firms continued to downsize, retaining only essential staff members. Quantity of Purchases saw a decline as well, as most firms adopted a wait-and-see approach, fulfilling only short-term requirements. 

However, there was some stability in suppliers’ delivery time, and some respondents mentioned the increasing availability of supplier credit facilities. 

Despite the prevailing challenges, the sentiment among construction firms for the next three months remained broadly positive. Several factors contributed to this optimism include; expectations of an economic recovery, decreasing interest rates, the subsiding of material costs, and ongoing negotiations regarding the recommencement of Government-funded projects that had previously been put on hold.