Sri Lanka’s manufacturing and service sectors have been greatly affected by the current political turmoil which has brought the country’s day today activities to a standstill further aggravating the economic crisis
Manufacturing sector has been paralyzed due to power cuts , fuel shortage and mass uprising and its functions declined in June 2022, indicating a setback in manufacturing activities on a month-on-month basis.
This was driven by the decrease in all the sub sectors except Suppliers’ Delivery Time. New Orders declined particularly in the manufacturing of food & beverage sector partly due to the deterioration of purchasing power amidst the high inflationary environment.
Many export-oriented manufacturing firms also witnessed lower than anticipated orders as foreign buyers are worrying over the fragile political and economic condition prevailing in the county and possible disturbances to order fulfillment.
The decline in Production levels in June 2022 over the previous month was mainly because of the shortage of materials and ongoing energy shortage.
Scarcity of fuel affected the Production directly, as well as indirectly through difficulties in transportation. Moreover, the Employment sub-index recorded a decline on a month on-month basis, particularly in the manufacture of food & beverage sector.
The Stock of Purchases declined mainly due to the unavailability of required quantities in the domestic market and difficulties in opening letters of credit for importing materials.
The Suppliers’ Delivery Time further lengthened during the month at a higher pace, mainly on account of delays in clearance of imported goods, COVID-related lockdowns in China, vessel delays, and diesel shortage that affected domestic transportation.
For the next three months, the overall expectations for manufacturing activities continued to deteriorate compared to the previous month due to the prevailing uncertain economic environment in the country, supply-side constraints and possible weakening of external demand.
Service sector came to a standstill further indicating a contraction in services activities for the third consecutive month.
This was due to the declines in New Businesses, Business Activities, Employment and Expectations for Activity sub-indices.
New Businesses declined further in June 2022 compared to May 2022, particularly with the decreases observed in transportation, accommodation, food and beverage and education sub-sectors.
Continued supply-side constraints including acute fuel shortages led Business Activities in the services sector to decline further in June.
Moreover, many respondents highlighted that the subdued consumer spending amid the high inflationary pressures, rising interest rates, transportation related issues and pessimism on economic outlook further weakened the demand, particularly related to discretionary items.
In the light of these circumstances, other personal activities, transportation, wholesale and retail trade, accommodation, food and beverage and education sub-sectors recorded sharp declines during the month.
