SL’s manufacturing, services PMI expands in November

Sri Lanka’s manufacturing and services sectors have expanded in November from a month ago, mainly supported by the employment and manufacturing activities while the data also pointing to continued expansion of the activities during the next three months, the Purchasing Managers’ Index (PMI) showed.  
The PMI, monthly calculated by the Central Bank is an important statistical model to gauge the health of an economy.
The manufacturing sector PMI has recorded an index value of 58.4 in November, an increase of 1.9 index points from October. 
While an index value above 50 indicates an expansion of the sector, index value less than 50 indicates a sector contraction and a value of 50 indicates a neutral level. 
The November PMI recorded its second highest value since the index was introduced in May last year. Earlier an index value of 60.7 in March 2016 was the highest recorded so far. 
“This was mainly due to the higher pace in which employment and production sub-indices expanded during the month. The new orders sub-index also increased during the month,” the statement from the Central Bank said. 
However the stock of purchases sub-index decelerated in November indicating a usage of stocks for the upcoming season while suppliers’ delivery time lengthened.

While the employment sub-index expanded during the month, majority businesses either plan to maintain their staff at existing levels or to downsize if they are forced to, as the operating conditions are 
getting toughened.
The November PMI data arrives at a time when the Business Confidence Index measured by LMD-Nielsen for the same month falling sharply to 144 compared to 165 a month ago due to concerns of re-implementation of 15 percent Valued Added Tax, higher interest rates and the policy environment   still not being perceived as conducive for investment growth. 
The budget 2017 also weighed on the business sentiments as it proposed higher and new taxes to collect more revenues to reduce the deficit to deliver on a condition by the International Monetary Fund. 
Higher taxes, interest rates and widely expected weakening of the rupee are expected to dampen the consumption led growth seen so far leading to relatively less demand for goods and services, hence these firms might have to scale down their production going forward.
However the improving fiscal conditions, though painful in the short to medium term for both consumers and businesses, could create better economic conditions during the long term. 
Meanwhile the services sector PMI too expanded to 59.7 from 59.3 index points in October recording its second highest after March’s 61.6. 
This expansion has been mainly driven by expansion in employment and expectations for activity sub-indices, the Central Bank said. 
But the new business and business activity sub-indices has decelerated from October.  
“However, Backlogs of Work declined in November albeit at slower rate than October 2016”, the Central Bank added. 
Meanwhile the prices charged, which are not taken into consideration in PMI compilation process, have increased at a higher rate in November 2016.