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Sri Lanka manufacturing, services inflate in Jan 2024 despite VAT hike

By: Staff Writer

February 18, Colombo (LNW): Sri Lanka’s manufacturing and services continued to inflate in January 2024 with a pick-up in apparels while services also moved forward despite concerns over a hike in value added tax, according to a Purchasing Managers’ Index compiled by the central bank.

Sri Lanka Purchasing Managers’ Index for Manufacturing (PMI – Manufacturing) recorded an index value of 55.6 in January 2024, indicating an expansion in manufacturing activities. This improvement was attributable to the increases observed in all sub-indices.

The expansion in New Orders and Production was largely driven by the manufacture of textiles & apparel sector. However, New Orders and Production in the manufacture of food & beverages sector decreased on a month-on-month basis due to the decline in demand with the end of December festival season.

Meanwhile, Employment and Stock of Purchases expanded during the month in line with the New Orders and Production. Further, Suppliers’ Delivery Time lengthened at a higher rate in January, mainly due to shipping disruptions in the Red Sea. Expectations for the manufacturing activities for the next three months remain positive, mainly due to the improved macroeconomic environment.

The continued expansion in Business Activities was driven by the significant improvements observed in other personal service activities, and accommodation, food and beverage sub-sectors amid tourist arrivals surpassing 200,000 for the second consecutive month.

Meanwhile, financial services also improved further in line with the reductions in market interest rates. Nevertheless, amendments to VAT and the end of the festive season adversely affected the wholesale and retail trade sub-sector during the month.

New Businesses increased in January, particularly with the increases observed in financial services, other personal service activities and professional services sub-sectors.Employment fell despite new recruitments made by several companies.

Meanwhile, Backlogs of Work continued to decline during January.Expectations for Business Activities for the next three months continued to rise in January. However, due to VAT amendments,there are concerns regarding a drop of sales in line with the decline in purchasing power of consumers and increase in input costs.

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