Manufacturing, services sectors shrink in April

The country’s manufacturing and services sectors suffered a sharp dip in April as per the Purchasing Managers Index (PMI) compiled by the Central Bank.

The manufacturing PMI decreased by 21.4 points as against March whilst the Services PMI was down by 7.5 points.

CBSL said the Manufacturing PMI declined significantly in April 2022, following the seasonal pattern and indicating a contraction in  manufacturing activities on a month-on-month basis.

Accordingly, Manufacturing PMI recorded an index value of 36.4 in April 2022, with a decline of 21.4 index points from the previous  month. 

This was due to the significant decreases reported in  Production, New Orders, Stock of Purchases, and Employment sub-indices compared to the seasonal peak in month of March. 

The decline in Production, particularly observed in the manufacture  of food and beverage and textiles and apparel sectors, was due to fewer  working days during the month owing to new year holidays, and  supply-side constraints including ongoing power outages/energy  shortage. 

Decrease in New Orders, especially witness in the  manufacture of food and beverage sector, was due to end of the festive  season demand. Employment also dropped on a month-on-month  basis with the increase of absentees following the new year holidays. 

Further, Stock of Purchases declined mainly due to the unavailability  of required quantities in the domestic market and difficulties in  opening letters of credit for importing materials. Many respondents  highlighted that they had to slow down production due to the  unavailability of required raw materials. 

Meanwhile, Suppliers’ Delivery Time lengthened at a higher pace in April 2022, mainly on account of international logistical issues, clearance delays due to forex  payment issues, and diesel shortage.

As the manufacturers are concerned about the growing uncertainties from multiple fronts, the overall expectations for manufacturing activities for the next three months deteriorated further in April 2022.

Services sector PMI dropped to an index value of 43.8 in April 2022, indicating a deterioration across the services sector amid the prevailing economic, social and political instability in the country.

New Businesses declined in April 2022 for the first time since August 2021, particularly with the deteriorations observed in accommodation, food and beverage, insurance, real estate and  transportation sub-sectors.

Business Activities also declined in April 2022 due to the continuous disturbances to business operations mainly attributable to prolonged power outages and difficulties in sourcing inputs including fuel and gas. Further, the subdued demand amid reduction in purchasing power, drop in tourist  arrivals and uncertainties in the country also affected the business  activities of some sub-sectors negatively. 

Accordingly, accommodation, food and beverage, professional services, education, insurance and real estate sub-sectors recorded major contractions during the month. Nevertheless, several companies, mainly in wholesale and retail trade and other personal activities sub-sectors, saw progresses supported by the festive demand.

Employment recorded a marginal decline in April 2022 due to contract expirations, retirements and resignations. 

Meanwhile, Backlogs of Work increased for the first time since September 2021 due to power outages, shortages of supplies and transportation difficulties.

Expectations for Business Activities for the next three months deteriorated further in April due to prolonged power outages, supply shortages and sharp increases in prices of fuel, gas and other inputs, increase in borrowing costs, subdued demand for non-essentials and economic, political and social instability in the country.