Sri Lanka’s manufacturing contracts but services up in May

Sri Lanka’s manufacturing activities have contracted for the second month in a row in May, according to the newly compiled Purchasing Managers Index (PMI) by the Central Bank, while the services sector has expanded. The manufacturing PMI in May recorded a value of 47.9 index points, slightly recovering from 41.6 points in April.

An index value below 50 indicates a contraction in the economic activities and is a closely watched economic indicator in both developed and emerging economies on a monthly basis to gauge the direction of the economy. The services sector PMI recovered to 58.1 index points in May from 54.7 points in April – the lowest since the index was introduced in May 2015. The PMI in Sri Lanka was introduced few months after Arjuna Mahendran took over office as the Governor of the Central Bank. Governor Mahendran has extensive knowledge and experience in the operations in emerging markets and was instrumental in introducing the index to Sri Lanka.

“The purpose of the survey is to provide purchasing professionals, business decisionmakers and economic analysts with a timely set of data to help better understand industry conditions,” the Central Bank said in a statement. However both indices – manufacturing and services PMIs – are now well below than when it was introduced in May 2015.

The manufacturing PMI back then was 67.3 points while services PMI was 66.8 points. The contraction in manufacturing PMI in May 2016 has been attributed to adverse weather conditions that prevailed during the last two weeks of May, disturbing the overall operations. “Factory premises of 29 percent of the survey respondents were directly affected by floods while others recorded disturbance due to transport issues and employee absenteeism,” the Statistics Department of the Central Bank said. Nevertheless, the Central Bank forecasts an improvement in activities during the next three months. Sri Lanka’s economy grew 5.5 percent during the first quarter largely supported by the industrial activities, but the lack of policy consistency, uncertainty and global economic challenges, particularly stemming from post-Brexit environment could further roil international markets adversely, impacting the domestic economy. Meanwhile, the expansion of the services sector has been attributed to increases in new businesses, employment, backlogs of work and expectations for activity sub-indices. However the sub-index, business activity index, “although expanded, slipped down further with the onset of off-season for certain service sector activities, recording the weakest level since the survey began in May 2015,” the Central Bank statement added.

The prices charged however have increased in May compared to month-onmonth decline recorded in April. Despite the PMI is measured for the entire country, the sample is only picked from the larger corporates in the Western Province and thus the index may not be fully representative.