Sri Lanka’s economic expansion continued into June, driven by resilient service sectors and steady factory output, though the manufacturing sector saw its growth momentum cool, according to the latest Central Bank data.
The Purchasing Managers’ Index (PMI) highlights a two-speed economy with a booming services sector capitalising on domestic recovery, alongside a manufacturing sector grappling with persistent domestic labour bottlenecks and global geopolitical anxieties.
Manufacturing moderates amid labour constraints
The Manufacturing PMI dropped to 53.0 in June from 56.6 in May. While any figure above the 50-point threshold indicates expansion, the drop signals a distinct deceleration in factory activity.
A flattening of new orders, which hit the neutral 50-point mark, was the primary drag on the index. Despite stagnant order books, actual production managed an upward trajectory, heavily supported by the robust food and beverages segment.
However, manufacturers are increasingly hitting operational walls. Firms reported severe shortages of skilled labour paired with escalating wage costs. To counter supply chain volatility and lengthening delivery times, companies aggressively built up inventories, stocking up on raw materials to create operational buffers.
While the outlook for the next three months remains generally optimistic, local manufacturers expressed growing anxiety over global stability, particularly the ongoing volatility in the Middle East, which threatens supply routes and energy prices.
Services sector surges on tourism hopes
Meanwhile, the services sector accelerated, with its index climbing to 58.5 in June from 56.9 in May.
The expansion was broad-based but led predominantly by financial and professional services, alongside strong gains in the insurance sector. This commercial momentum was reflected in the new businesses index, which jumped to 62.5 from 58.0 the previous month.
The service sector's buoyancy translated into job creation. Staffing levels rebounded sharply into growth territory, rising to 54.0 from 49.4 in May, as firms expanded their workforces to meet rising demand.
Furthermore, the persistent contraction in backlogs was halted, with outstanding business volumes stabilising perfectly at the neutral 50-point mark.
Service providers remain highly optimistic about the upcoming quarter. The sector is banking heavily on the continued domestic macroeconomic recovery and a highly anticipated influx of tourists for the upcoming Kandy Esala Perahera festival, which is expected to provide a substantial boost to hospitality, transport,