Sri Lanka Purchasing Managers’ Index - December 2020

Statistics Department

15.01.2021

SL Purchasing Managers' Index (PMI) - December 2020

Purchasing Managers' Indices for both Manufacturing and Services activities expanded in December 2020

Benefitting from the gradual normalising of economic activities in the country, the Manufacturing PMI continued to increase in December 2020, on a month-on-month basis, recording an index value of 61.2. This was mainly attributable to the increases observed in Production, New Orders, Employment, and Stock of Purchases sub-indices.

The significant increase in Production and New Orders sub indices, particularly in the manufacture of food & beverages sector, has mainly contributed to the improvement in the overall index. Meanwhile, Employment sub index also increased during the month of December 2020. Some respondents in the manufacture of food & beverages and textiles & wearing apparel sectors highlighted that they could better utilize employees amidst the improved factory operations with increased demand.

	Variable		Nov		Dec		+/-		Summary
	PMI		57.6		61.2		+		Rising, Higher Rate
			Sub-Indices of PMI
	New Orders		61.8
			63.5		+		Rising, Higher Rate
	Production		52.2
			60.1		+		Rising, Higher Rate
	Employment		48.9
			51.1		+		Rising from Falling
	Stock of Purchases		47.2		55.6		+		Rising from Falling
	Suppliers' Delivery Time		77.0		75.3		-		Lengthening, Slower Rate

Source: Central Bank of Sri Lanka

The Stock of Purchases sub-index increased significantly in line with the expansion in New Orders and Production, as well as with the intended accumulation of stocks anticipating supply chain disruptions in coming months, particularly due to upcoming Chinese new year holidays. Further, the Suppliers' Delivery Time sub-index lengthened at a slower pace in December. Many respondents mentioned that their shipments were rescheduled, causing considerable delays in arrival/clearance of required materials, mainly due to the continuous delays at the Port of Colombo.

Expectations for manufacturing activities in the next three months improved further with the expectation for the normalisation of economic activities within the country as well as in major export markets.

Manufacturing

		PMI	Increase of
		3.6 index points
		Index Value	compared to
		61.2	November 2020
		PMI - Manufacturing
100
			Increasing rate of growth
		56.0	54.3		57.6	61.2
50
			Increasing rate of contraction
0
	Nov Dec	Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec	Jan Feb Mar Apr May Jun Jul Aug	Sep Oct Nov Dec
	2018	2019		2020
				Source: Central Bank of Sri Lanka

The World Outlook:

Manufacturing PMI

The global manufacturing PMI recorded a valueof 53.8 in December 2020 with an increase of 0.1 index points from November 2020.

Manufacturing PMIs of UK, Eurozone, USA and India continued to increase at a higher rate while that of China increased at a slower rate in December 2020. Manufacturing PMI of Russia declined, yet at a slower rate, during the month with the continuation of adverse impact of COVID-19.

Source: Markit1 as at 15th January 2021

1 Markit is a leading global diversified provider of financial information services. It is identified as the global PMI compiler and compiles PMIs for over 30countries and for key regions including the Eurozone.

Page 1 of 2

Reaching 55.6, Services PMI returned to the growth territory in
		Services
December 2020, after recording index values less than the			Increase of
		PMI
threshold level of 50.0 for two consecutive months. This increase			6.8 index points
was led by the expansions observed in new businesses, business			Index Value
		compared to
activities, backlogs of work and expectations for activity compared to		55.6
November 2020, indicating a recovery in the services sector, which		November 2020
was affected by the second wave of COVID-19 pandemic.
New businesses increased further in December 2020, particularly with
the improvements observed in financial services and insurance sub-			PMI - Services
sectors.	100

Increasing rate of growth

Business activities in the services sector increased in December 2020 after declining for two consecutive months. Accommodation, food and beverage sub-sector saw an improvement during the month 50 mainly due to the growth in domestic tourism during the holiday season. Further, business activities in transportation, and wholesale

and retail trade sub-sectors expanded owing to relaxation of travel

0

restrictions to some extent during December 2020. Moreover, financial services and other personal services sub-sectors also experienced an increase in activities in December 2020. However, respondents in freight forwarding and import trade cited their concerns over import restrictions.

Employment sub-index increased reflecting a moderation of decline in employment in December 2020 since some firms have started to hire new employees in line with the rise in business activities.

Backlogs of work slowed down in December 2020 indicating comparatively lesser disruptions to business activities compared with the previous month.

	Variable		Nov		Dec		+/-		Summary
	PMI		48.8		55.6		+		Rising from Falling
				Sub-Indices of PMI
	New Businesses		50.5
			55.0		+		Rising, Higher Rate
	Business Activity		43.0		64.5		+		Rising from Falling
	Employment		39.0		44.4		+		Falling, Slower Rate
	Backlogs of Work		58.5
			51.6		-		Rising, Slower Rate
	Expectations for Activity		53.0		62.5		+		Rising, Higher Rate

Source: Central Bank of Sri Lanka

Expectations on future business activities increased notably in December 2020 with increased optimism on the recovery of economic activities that were affected by the second wave of COVID-19 pandemic.

	57.4	60.2	55.6
			48.8
			Increasing rate of contraction
Nov Dec	Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec	Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018	2019		2020
			Source: Central Bank of Sri Lanka

The World Outlook:

Services PMI

Global services PMI declined to 51.8 in December 2020 from 52.2 in November 2020, signalling slowdown in expansion of global service activities.

Services PMIs of USA, China and India indicated that their services sectors expanded in December 2020 compared to the previous month, while that of Japan and UK indicated a deterioration.

Source: Markit1 as at 15th January 2021

Technical Note

The Index

PMI is calculated as a 'Diffusion Index', where it takes values between 0 and 100.

PMI=50 - sector remained neutral on month-on-month basis; PMI>50 - sector is generally expanding on month-on-month basis PMI<50 - sector is generally declining on month-on-month basis

Sample

The sampling frame was based on a list of large companies located in the Western province obtained from the EPF Department. Samples for Manufacturing and Services activities were selected based on the GDP sectoral share, with a target of 100 responses for each.

Definitions of Variables
Employment	: Number of staff working for the organization
Stock of purchases	: Raw materials purchased and kept in a warehouse to be used for production
Supplier Delivery Time	: Time lag between order placement and delivery by the supplier
Backlogs of Work	: Uncompleted orders due to increased flow of business activity

Other variables are self-explanatory.

Page 2 of 2