Construction boom continues

The local construction sector continued to expand at a faster pace in July, extending a nearly two-year recovery, supported by increased public sector spending and a pickup in private sector building activity.

The Purchasing Managers’ Index (PMI) for the construction sector rose to 60.0 in July from 58.6 in June. 

In PMI terms, a reading above 50 indicates expansion, while a value above 50 signals a faster expansion. A reading below 50 indicates contraction, and 50 is neutral.

PMI is a key leading indicator of economic activity across sectors such as manufacturing, services, and construction, providing an early signal for gross domestic product trends, which are released with a two-and-a-half-month lag.

Survey respondents cited the increased availability of projects, particularly in road infrastructure, as evidence of rising government investment in the country’s stalled infrastructure development. Sri Lanka’s construction sector and broader economy have historically been driven by government-led infrastructure spending, especially since the end of the nearly 30-year civil war in 2019, which necessitated rebuilding war-affected areas and upgrading national infrastructure.

Private sector projects also contributed to the July PMI increase. “Most of the respondents highlighted a growth in road development and private sector projects in July, which contributed to a further increase in the new orders index during the month,” the survey statement said.

The employment sub-index remained at a neutral level, indicating stable workforce numbers. Despite the sector’s nearly two-year recovery, companies have been cautious in hiring, waiting for confirmation of sustained project availability, particularly government-funded initiatives, following disruptions from political changes, pandemics, foreign currency shortages, and liquidity constraints.

With these uncertainties easing, construction activity has grown consistently, positioning the sector to once again become a leading employer. 

Survey respondents expressed optimism about the sector’s outlook, “particularly with many firms anticipating an increased presence of government sector projects.”