Sri Lanka manufacturing activities continued its setback on a month-on-month basis while the services sector slightly improved its progress in January 2023, Central Bank data shows. The decline in New Orders and Production was mainly attributable to the subdued demand condition observed, particularly in the manufacture of food & beverages, and textiles & wearing apparel sectors. Many respondents involved in the manufacture of food and beverages mentioned they experienced a notable decline in demand mainly due to the deteriorating purchasing power of the consumers, in addition to the seasonal drop in demand following the December festival season. Export-oriented manufacturers such as those in the textiles & wearing apparel sector observed that the export demand remains subdued amidst a slowdown in major export destination economies, forcing them to run factories significantly below the full capacity. Meanwhile, Employment and Stock of Purchases also declined in line with the decline in New Orders and Production. Many respondents mentioned that they intentionally reduced material purchases with the inventory build-up. Further, Suppliers’ Delivery Time lengthened in January 2023, compared to the previous month on a month-on-month basis. Expectations for manufacturing activities for the next three months indicated an improvement, anticipating an increase in demand during the upcoming festive season, despite the decline in disposable income. In January 2023, Purchasing Managers Indices indicated that Services activities remained slightly expanded while manufacturing activities continued to deteriorate. Services PMI recorded an index value of 50.2 in January 2023, remaining slightly above the threshold level. This was underpinned by the improvements observed in New Businesses,Business Activities and Expectations for Activity. New Businesses improved at a faster pace in January 2023 compared to December 2022, particularly with the increases observed in financial services, education and real estate sub-sectors. Business Activities in the services sector continued to increase at a slower pace in January 2023. Accordingly, financial services,education and telecommunication sub-sectors showed improvements during the month. Further, in line with the increase in tourist arrivals, there were some improvements in business activities related to other personal activities and accommodation,food and beverages sub-sectors. However, business activities related to the wholesale and retail trade sub-sector continued to deteriorate amid off season and reduced purchasing power of consumers. Furthermore, the transportation sub-sector also declined due to decrease in freight volumes, particularly related to textiles wearing apparel sector. Employment declined in January at a faster pace due resignations, migrations and retirements occurred during the month. Backlogs of Work also decreased at a faster pace during the month.