Sri Lanka’s business sector displayed resilience in August 2025, with both manufacturing and services recording strong expansion, according to the latest Purchasing Managers’ Index (PMI) released by the Central Bank. While manufacturing maintained momentum despite global supply chain delays, the services sector continued to outpace expectations, fuelled by robust domestic demand and tourism-led recovery.
The PMI for Manufacturing registered 55.2 in August, signaling continued growth, though at a slower pace compared to July. All key sub-indices new orders, production, employment, and stock of purchases remained above the neutral 50 threshold.
The food and beverage segment was the primary driver, reflecting higher seasonal demand and steady domestic consumption. The employment sub-index also stayed positive, highlighting favourable labour market conditions in the sector. However, delays in international shipping led to longer supplier delivery times, underscoring lingering vulnerabilities in global trade flows.
Manufacturers remain cautiously optimistic about year-end targets, with industry associations projecting output growth of 4–5% in 2025, provided raw material imports remain stable. Export-oriented apparel and rubber product manufacturers, however, continue to face weaker demand from Western markets due to global economic slowdowns.
Analysts warn that sustaining competitiveness will depend on easing import restrictions, reducing energy costs, and improving logistics efficiency.
In contrast, the Services PMI surged to 68.9, marking one of the strongest expansions in recent years. Growth was broad-based, led by wholesale and retail trade, financial services, and tourism-related sectors such as accommodation and food and beverages.
August’s record tourist arrivals of nearly 200,000 visitors, mostly from India, China, and Europe, provided a significant boost to hospitality and personal services. Financial services also strengthened, reflecting increased lending and improved investor confidence.
New business generation in services climbed notably in August, while recruitment trends pointed to higher demand for skilled labour across banking, retail, and IT-enabled services. The slight decline in backlogs of work suggests companies are meeting demand more efficiently, aided by digitalization and productivity improvements.
Looking ahead, Sri Lanka’s services sector is expected to remain the primary growth engine for the economy in 2025, with government targets of 2.5 million tourist arrivals by year-end appearing achievable. The IT and business process outsourcing (BPO) industry is also projected to expand by double digits, reinforcing its role as a foreign exchange earner.
While the services sector outpaces manufacturing, economists caution that balanced growth is crucial for long-term stability. Strengthening manufacturing competitiveness through policy reforms and investments in export diversification will be essential to meet Sri Lanka’s overall GDP growth target of 3% in 2025.
