The Manufacturing Purchasing Managers’ Index (PMI) declined in June 2022, indicating a setback in manufacturing activities on a month-on-month basis. Accordingly, Manufacturing PMI recorded an index value of 44.1 in June 2022, with a decline of 6.2 index points from the previous month. The Central Bank of Sri Lanka (CBSL) said that the index value decline was driven by a decrease in all sub-indices except the category of suppliers’ delivery time.The CBSL further noted that new orders declined particularly in the manufacturing of food and 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 fulfilment. The CBSL said: “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 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 food and 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, the CBSL observed. The CBSL also predicts that 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.It was noted that the services PMI dropped further to an index value of 40.3 in June 2022 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.Accordingly, 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.The 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. Meanwhile, the continued fall in tourist arrivals to Sri Lanka fuelled by the adverse travel advisory warnings also affected the business activities related to several sub-sectors negatively.Employment continued to decline in June due to a freeze in new recruitments, contract expirations, retirements and resignations. As a result of fuel and other supply shortages, transportation difficulties faced by staff and power outages, backlogs of work increased further during the month.Expectations for business activities for the next three months slumped further in June due to persistent unfavourable supply and demand conditions amid continued and heightened uncertainties in the country.