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Food and beverage orders decline in May

17 Jun 2021

  • PMI witness contraction

  • Elevated freight rates increased cost of raw material imports

  New orders particularly made in the manufacture of food and beverage sectors of the country declined during the month of May, with the end of seasonal demand and the resurgence of the pandemic, the Central Bank of Sri Lanka noted.  Accordingly, in line with these developments and the deterioration in accumulated stocks of raw material, the stock of purchases contracted. Manufacturing activities contracted during May due to adverse impacts of the third wave of the Covid-19 pandemic. The manufacturing Purchasing Managers’ Index (PMI) recorded an index value of 42.1 in May 2021 with a fall of 2.2 index points from the previous month, mainly driven by the significant contraction in production, employment, new orders, and stock of purchases sub-indices. The production, especially in the manufacture of food and beverages and textiles and wearing apparel sectors, declined significantly together with the decline of employment mainly due to the continued increase in absenteeism without informing. On top of this, many respondents in those sectors highlighted that their production plans were largely disrupted due to a significant reduction of availability of employees amidst the mobility restrictions imposed in mid-May. Suppliers' delivery time further lengthened at a higher pace in May 2021 mainly due to the delays in receiving imported and local supplies. Furthermore, many respondents highlighted that elevated freight rates increased the cost of imported raw materials and affected profit margins adversely. The sub-index of expectations for manufacturing activities for the next three months increased with the positive anticipation on the normalisation of economic activities in the coming months supported by the progress of the Covid-19 vaccination programme and curtailing the pandemic with mobility restrictions. In line with the escalation of the third wave of the Covid-19 pandemic, the services PMI dropped further to 39.5 in May 2021, recording the lowest reading since April 2020. This decline was underpinned by the deteriorations observed in new businesses, business activities, employment, and expectations for activity. New businesses in the services sector declined at a faster pace in May 2021 compared to April 2021 with declines observed in most sub-sectors. However, the human health activities sub-sector saw an improvement with the setup of new Covid-19 treatment centres.


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