Manufacturing drops to all-time low in April

„New Year holidays and Easter Sunday attacks key reasons „Services PMI records value below neutral 50 threshold for first

The manufacturing activities contracted, recording the alltime low index value of 41.0 in April 2019, with a decline of 25.9 index points from March 2019, the Central Bank said this week.

The decline of Manufacturing PMI is mainly driven by the significant drop in new orders and production, especially in manufacturing of food, beverages and tobacco and manufacturing of textiles, wearing apparels, leather and related activities products.

This decline was mainly due to the

New Year holidays in April and the security concerns that arose following the Easter Sunday attacks, which affected the smooth functioning of factory operations.

Most respondents, especially in the textile and apparel sector, highlighted that they had to restrict working hours in factories due to security concerns and were unable to achieve the desired production levels.

Employment also dropped significantly, as a higher number of employees were absent after the New Year holidays. The stock of purchases decreased due to the decline in new orders at the end of the New Year season, and brought forward stocks of raw material from previous month.

The Suppliers’ Delivery Time lengthened at a higher rate due to increased security measures after the Easter Sunday attack.

All sub-indices excluding Suppliers’ Delivery Time of Manufacturing PMI recorded values below the neutral 50.0 threshold, signalling an overall contraction in manufacturing activities in April 2019 compared to March 2019.

Meanwhile, the services sector deteriorated in April 2019, compared to March 2019, underpinned by a decline in all five sub-indices, namely, New Businesses, Business Activity, Employment, Backlogs of Work and Expectations for Activity.

This is the first time that the Services PMI recorded a value below the neutral 50.0 threshold, signalling overall deterioration in Services sector, since May 2015, when conducting of the survey began.

The deterioration in New Businesses, Business Activity, and Expectations for Activity was mainly due to the Easter Sunday attack and prevailing uncertainty in the country. This was observed across a majority of the subsectors in the services sector, particularly in accommodation, food and beverage and other personal services sub-sectors, which largely depend on the tourist arrivals and wholesale and retail trade and transportation sub sectors, which largely depend on the day-to-day activities of the people. Respondents cited that limitation of business hours due to imposition of islandwide curfews and low productivity of the staff due to fear as reasons for deterioration in business activity. However, they expect this situation to be normalised by June 2019.

The prices charged in the services sector increased at a slower rate in April 2019 due to price increases related to the New Year festival. Also the expected labour cost in the services sector increased at a slower rate due to the realisation of expected salary increments in April 2019.