Industrial activity gains momentum, but remains below pre-crisis highs

Sri Lanka’s industrial production is gaining further strength, with strong domestic and foreign demand, easing costs, and lower interest rates helping the sector expand continuously and approach its previous highs.

According to the latest available data, the Index of Industrial Production (IIP) recorded a value of 101.4 for July 2025, a 6.4 percent increase from the same period in 2024. This marks the first time the index has surpassed the 100.0 level since March of this year (when it was 103.9), following a brief slowdown in April typically caused by factory closures for the traditional New Year holidays.

Industrial activity has been steadily recovering since the country’s economic crisis in 2022, after which the index consistently remained below the 100.0 mark until March of this year. Shortages of foreign currency for essential imports, record-high inflation, and soaring interest rates and taxes took a massive toll on all corners of the economy, with the industrial sector being the most affected.

Despite the recovery, which has seen the index remain above 90.0 since early 2024, industrial activity has yet to reach the levels seen immediately prior to the 2022 economic collapse or the all-time highs of March 2021, which saw a spurt in activity following the initial waves of the Covid pandemic. For instance, the index stood at 107.3 in March 2022, shortly before the full effects of the foreign exchange crisis began to reverberate through the economy. A year earlier, in March 2021, the index was at an even higher level of 119.6.

The expansion in July 2025 was mainly driven by 16.2 percent growth in the wearing apparel segment, 15.9 percent growth in other non-metallic mineral products, and a significant 166.7 percent growth in coke and refined petroleum products.

The growth in apparel manufacturing may be linked to jitters over reciprocal tariffs from the United States, which became effective in August. Whether this is due to stockpiling by U.S. customers ahead of the tariffs or a general growth in orders for Sri Lankan manufacturers will become clearer once August’s external sector data is available.

In July, textiles and garments exports rose by 8.3 percent to US$ 481.4million. This took the total export earnings from garments for the first seven months of the year to US$ 3,087.3 million, an increase of 8.2 percent from the same period in 2024. For context, total merchandise exports in August also showed strong growth, rising by 15.2 percent to US$ 1,302.0 million.

Meanwhile, the manufacturing of food products was down 5.9 percent in July, despite recovering domestic consumer spending and double-digit growth in food, beverage, and tobacco exports during the same month. Nevertheless, the index for beverage production was up 8.2 percent.

Other sectors showed mixed results. Chemical and chemical products manufacturing was up 5.2 percent. However, rubber and plastic products were down 10.3 percent in July from a year ago.