Fresh concerns as manufacturing, services contract in August

• Downturn due to COVID lockdown after pick-up in July
• Expectations for Business Activities for next three months dropped in August, after increasing for two consecutive months, amid extended travel restrictions and growing concerns with regard to import restrictions and its related adverse effects on business operations
• Purchasing Managers’ Index suggests overall expectations for manufacturing activities for the next three months remained above the neutral threshold

The country’s manufacturing and services sector had contracted in August as per the Purchasing Managers’ Index (PMI) compiled by the Central Bank, sparking fresh concerns over the impact of the COVID third-wave-induced lockdowns. 

The contraction in August is after the two sectors saw a pick-up in July. 

The Central Bank said the resurgence of the COVID-19 pandemic in August 2021 had slowed down the manufacturing activities in the country.

It said the manufacturing PMI recorded an index value of 45.1 in August with a fall of 12.7 index points from the previous month, mainly driven by the decrease in New Orders, Production, Employment, and Stock of Purchases sub-indices.

The decline in New Orders and Production, especially in the manufacture of food and beverages, furniture, and textiles and wearing apparel sectors, have mainly contributed to the overall decrease of the manufacturing PMI. 

“Many respondents in those sectors highlighted that their local orders and distribution channels were affected due to the lockdown imposed as a measure of containing the pandemic,” the Central Bank said. 

Further, many of them also emphasised that factory operations were disrupted due to the spread of the COVID-19 virus among employees. Employment sub-index also declined in line with these developments.

The decrease of Stock of Purchases was in line with the decline in New Orders and Production. Further, the difficulties encountered in placing purchase orders and in settling foreign payments also adversely affected the supply chain of raw materials and production schedules. 

Many respondents stressed that the continuous increase in the cost of imported raw materials adversely affected their profit margins. 

Suppliers’ Delivery Time lengthened at a slower rate in August.

The manufacturers cautioned that the uncertainty over the COVID-19 pandemic would continuously hinder the prospects of the manufacturing sector, yet overall expectations for manufacturing activities for the next three months remained above the neutral threshold.

The Central Bank said the Services PMI dropped to an index value of 46.2 in August with the restrictions imposed to contain the further spread of the COVID-19. 

New Businesses, Business Activity, Employment and Expectations for Activity sub-indices recorded declines. New Businesses decreased in August compared to the previous month mainly with the declines observed in wholesale and retail trade, insurance, real estate, and education sub-sectors.

Business Activities across most of the sub-sectors such as, wholesale and retail trade, real estate, insurance and other personal activities reported considerable declines indicating the adverse effects of travel restrictions on their business operations.

Nevertheless, the transportation sub-sector recorded some improvements solely due to the growth in freight volumes.

Moreover, the financial services sub-sector also indicated improvements despite the disturbances from travel restrictions. 

Employment continued to fall at a higher pace as retirements and voluntary resignations exceeded the number of recruitments carried out during the month.

Backlogs of Work increased at a higher pace in August along with the reduction in staff availability amid travel restrictions and growing COVID-19 infections of staff.

The Central Bank said expectations for Business Activities for the next three months dropped in August, after increasing for two consecutive months, amid extended travel restrictions and growing concerns with regard to import restrictions and its related adverse effects on business operations.