3Q battered economy starts 4Q bruised

• Purchasing Managers Index points to continued contraction in both manufacturing and services activities in November 

Hot on the heels of 11.8% contraction of economy in the third quarter, the country’s manufacturing and services sectors entered the fourth quarter with downturn continuing as per the Purchasing Managers Index (PMI).

Its compiler Central Bank said PMI for both manufacturing and services activities remained contracted in November, 

CBSL said indicating a setback in manufacturing activities on a month-on-month basis, Manufacturing PMI recorded an index value of 42.1 in November 2022. This setback was contributed by subdued performance observed in all the sub-indices, except for Suppliers’ Delivery Time.

New Orders and Production remained contracted in November mainly due to the subdued demand conditions, particularly in the manufacture of the food and beverages, and textile and wearing apparel sectors. 

Many respondents representing the food and beverages sector mentioned that deterioration of purchasing power of the consumers was the major reason for the decline in demand. In the meantime, export-oriented manufacturers, particularly in the textile and apparel sector, highlighted that the subdued demand was due to the economic slowdown in major export destination and shifting of orders to other countries amidst stiff competition. 

Besides these, acquiring required raw materials was an issue for certain manufacturers due to a shortage of foreign exchange. Furthermore, Employment and Stock of Purchases declined in-line with the decline in New Orders and Production. Meanwhile, Suppliers’ Delivery Time lengthened in November 2022 compared to the previous month.

Expectations for manufacturing activities for the next three months indicated an improvement in November 2022 anticipating improvements in economic condition.

Services PMI recorded an index value of 49.0 in November 2022, up from 47.9 in October, yet remained slightly below the neutral threshold level. The rate of decline in services activities was softened with the improvements observed in New Businesses, Business Activities and Expectations for Activity. However, Employment and Backlogs of Work declined during the month.

New Businesses improved in November 2022 compared to October 2022, particularly with the increases observed in some financial services, insurance, and other personal activities.

Business Activities in the services sector continued its increasing trend in November 2022 due to the upcoming festive season.

Accordingly, business activities related to other personal activities, financial services and telecommunication sub-sectors showed improvements compared to the previous month. Further, in line with the increase in tourist arrivals, business activities in accommodation, food and beverages sub-sector also increased.

However, business activities related to wholesale and retail trade sub-sector declined further during the month amid the continued cost of living challenges.

Employment continued to fall in November due to increasing resignations, migrations and retirements though few recruitments took place in several companies. Meanwhile, Backlogs of Work dropped at a faster pace during the month.

Expectations for Business Activities for the next three months improved further especially with the festive season and optimism regarding improvements in economic conditions.