Purchasing Managers’ indices for manufacturing, services contract in May

Manufacturing activities contracted during May due to adverse impacts of the third wave of COVID-19 pandemic according to the Central Bank compiled Purchasing Managers’ Index (PMI).

The manufacturing PMI recorded an index value of 42.1 in May with a fall of 2.2 index points from the previous month, mainly driven by the significant contraction in Production, Employment, New Orders and Stock of Purchases sub-indices.

The Production, especially in the manufacture of food and beverages and textiles and wearing apparel sectors, declined significantly together with the decline of Employment mainly due to the continued increase in absents without informing. On top of this, many respondents in those sectors highlighted that their production plans were largely disrupted due to a significant reduction of availability of employees amidst the mobility restrictions imposed in mid-May.

The New Orders also declined during the month, especially in the manufacture of food and beverages sector, with the end of seasonal demand and the resurgence of the pandemic. In line with these developments and the deterioration in accumulated stocks of raw material, the Stock of Purchases contracted.

The Suppliers’ Delivery Time further lengthened at a higher pace in May mainly due to the delays in receiving imported and local supplies. Further, many respondents highlighted that elevated freight rates increased the cost of imported raw materials and affected adversely on profit margins.

The sub-index of Expectations for manufacturing activities for the next three months increased with the positive anticipation on the normalisation of economic activities in the coming months supported by the progress of COVID-19 vaccination programme and the curtailing the pandemic with mobility restrictions. 

In line with the escalation of the third wave of COVID-19 pandemic, Services PMI dropped further to 39.5 in May, recording the lowest reading since April 2020. This decline was underpinned by the deteriorations observed in new businesses, business activities, employment and expectations for activity.

New businesses in the services sector declined at a faster pace in May compared to April with declines observed in most subsectors. However, the human health activities sub-sector saw an improvement with the setup of new COVID-19 treatment centres.

Business activities in the services sector saw a sharper decline in May. Declines were observed almost across all the sub-sectors caused by the drop in demand for non-essentials and constraints to business operations amid travel restrictions imposed to contain the spread of the third wave of COVID-19 pandemic. 

Wholesale and retail trade, other personal activities and accommodation, food and beverage, and professional services sub-sectors contributed the most towards the decline in overall business activities. Nevertheless, business activities in human health activities, and IT programming consultancy and related activities sub-sectors remained at the same level as in the previous month.

Employment continued to decline in May due to retirements, resignations and contract expirations amid the absence of new recruitments.

Backlogs of work increased further in May with continued localised lockdowns and island wide travel restrictions imposed towards the latter part of the month.

Expectations for business activities for the next three months weakened further in May due to the anxiety among businesses about growth prospects with the intensification of COVID-19 pandemic.