The construction sector entered April 2026, contributing Rs1.9 trillion to GDP and backed by a Rs2 trillion government investment programme, CT Smith Securities said. A shortage of raw materials, driven by the Middle East conflict, was pushing up costs and threatening to delay projects. CT Smith analysts had identified this as the principal threat to that expansion. The Central Bank of Sri Lanka’s monthly construction survey showed the sector contracting, the supply pressure compounding what would otherwise have been a routine seasonal slowdown around the Sinhala and Tamil New Year.
The Central Bank tracks total construction output through the Purchasing Managers’ Index for Construction (PMI – Construction).
“A shortage of raw materials, driven by the Middle East conflict, is pushing up costs and threatening to delay projects.”
It fell to 45.7 in April from 57.1 in March. Readings above 50 signal expansion; those below 50 signal contraction.
The survey’s sub-indices show where the pressure is concentrated. The Quantity of Purchases Index, which tracks how much raw material firms are buying, dropped to 42.6 from 55.7. Supplier delivery times lengthened for a second month running, the delivery-time index holding at 71.4. New orders remained in expansion territory at 62.9, down from 67.2 in March, supported mainly by road rehabilitation work.
“Several respondents indicated that some new projects could face delays as rising raw material costs may require price renegotiations,” the Central Bank says.
Those delays threaten a sector entering its strongest growth cycle since the 2022 crisis. CT Smith Securities said in an April report that growth was built on a government capital programme of about Rs2 trillion over 2026–2028, with about 70% directed at construction-related sectors. Within this allocation, highways account for 48%, irrigation 17.5%, and housing 9.3%. Rebuilding following Cyclone Ditwah, which struck in late 2025, was expected to add further demand, the firm said, with government estimates placing reconstruction costs at about Rs878 billion as of January 2026.
The supply pressure threatening that pipeline has deeper roots than a single month’s data. CT Smith said material costs had held steady for about 18 months before April, but that a cost escalation cycle was now underway, with rising energy prices and supply chain pressures making further increases likely.
Sri Lanka is not alone in the slowdown. The Central Bank’s Statistics Department compiles the index from surveys of about 35 of the highest-graded local construction companies registered with the Construction Industry Development Authority, following S&P Global’s survey methodology. All six construction markets the firm tracks, including the UK, Germany, France, Ireland, Italy, and the broader Eurozone, reported activity falling at a faster rate as of late May 2026.
The burden is not distributed evenly. CT Smith said smaller contractors, with limited liquidity and narrower margins, face greater risks of margin pressure and execution delays, while larger contractors and government-linked entities are better placed to absorb the increases.
The sector’s execution challenges extend beyond material costs. Employment grew in April, though at a slower rate than in March — the employment index fell to 55.9 from 57.1 — as firms kept hiring in response to steady project availability. The Central Bank says “many firms highlighted shortages across most skilled labour categories,” a gap that limits how quickly output can recover once the holiday period passes.
The April contraction reflects the holiday period, not a collapse in demand. The same seasonal slowdown pulled the index to a steeper 41.4 in April 2025 from 54.3 in March. New orders stayed in expansion at 62.9, and the Central Bank says business sentiment for the next three months remained positive, though concerns over the Middle East conflict persist. The sector has the contracts, the pipeline, and the demand. The raw materials and their cost remain an open question.