Manufacturing sector contracts in April due to New Year holidays

Sri Lanka’s manufacturing sector experienced a contraction during the month of April due to the New Year holidays, according to the Purchasing Mangers’ Index (PMI) compiled by the Central Bank.

Accordingly, the manufacturing sector PMI contracted recording an index value of 45.5 in April with a decline of 20.1 index points from March.

“The New Year holidays in April dragged back the manufacturing activities following the peak level of activities observed in the previous month and was in line with the pattern observed in previous years,” the Central Bank said.

The contraction of PMI in April was largely attributable to the contraction in the production and new orders sub-indices. Stock of purchases and employment sub-indices also decreased during the month.

Moreover, lengthening of the suppliers’ delivery time sub-index slowed down during the month, which partially indicates that the suppliers are less busy.

The Central Bank said the respondents highlighted that the increase in the unauthorised absentees following the New Year holidays disturbed the manufacturing activities.

Particularly, the respondents in the textiles and apparel sector highlighted difficulties in finding both skilled and unskilled workers.

However, the expectation for activities indicates an improvement for the next three months.

Meanwhile, the services sector expanded at a moderate pace during April, recording an index value above 50 points but recording an all-time low with softer growth in new business and business activity.

The services sector PMI recorded 53.2 index points in April, which is an all-time low, from 58.0 index points in March 2018.

As observed in the previous two years as well, the services sector generally experiences a slower growth in April compared to March.

The slower rate of expansion in both new businesses and business activity were mainly observed in real estate, telecommunication and accommodation, food and beverage sectors.

Some respondents attributed this to a higher number of holidays in April 2018. Continuing the trend observed in the previous two months, backlogs of work declined, while employment also declined due to the delays in filling open positions.

However, expectations for activity remained strong, reflecting optimism on the near-term business outlook.

The prices charged of the services sector increased owing to higher demand during the festival season, depreciation of the rupee, expectations for a pricing formula for fuel and recent revisions to the tax structure.

Meanwhile, the expected labour cost increased at a slower rate due to the realisation of the expected salary increments that were due in April 2018.