ADB cuts 2015 growth forecast

25 March 2015 04:54 am Views - 2500

 By Chandeepa Wettasinghe 
Sri Lanka’s economic growth is projected to drop to 7 percent in 2015, but is set to pick up in the following year, according to Asian Development Bank (ADB).
“Under this political condition, investments may be affected this year. So, we are projecting a slowdown this year. However, in the medium-term and long-term, we are quite optimistic,” ADB Senior Country Economist for Sri Lanka Tadateru Hayashi said during the launch of ADB’s flagship annual economic publication, Asian Development Outlook 2015 (ADO).
He said that the GDP composition will see a shift from investment to consumption this year.
“Price reductions of food and fuel will encourage private consumption and a shift towards recurrent expenditure in the budget will increase government consumption,” he said.
However, he noted that the slowdown may not necessarily be a bad situation.
“Now is a good time to review the past and adjust for the future.”
ADB expects the 2016 growth increase to be 7.4 percent, driven by a rebound in investments and increased consumption.
Yet, the Central Bank in early January had predicted an 8 percent growth for both 2015 and 2016.
The country’s growth was 7.4 percent in 2014, reaching neither the 7.5 percent prediction set by ADB, nor the 7.8 percent target of the government.
Hayashi noted that last year’s growth was achieved through stronger exports, recovery of past investments and the booming tourism industry. “Exports are expected to strengthen in 2015 and 2016 as the economies of Sri Lanka’s trading partners pick up the pace. Imports are expected to rise overall, although lower investment by the government and private sector may slow imports of investment goods this year,” ADO 2015 noted.
Meanwhile, it stated that inflation is expected to remain low at 2 percent in 2015, but jump to 5 percent in 2016.
Hayashi said that the reduction this year is due to the fuel and commodity price cuts in January, which has caused a massive decline in headline inflation, with core inflation hitting negative levels.
The Central Bank too expects low inflation this year, unconcerned by import pressures due to it propping up the rupee.
According to ADB figures, the country will take till next January to reach the pre- interim budget inflation figures, following which, despite a lack of a jump in prices, the base effect would make the rate 5 percent.
Hayashi stressed that future growth should take place in the form of investments into innovation and knowledge, since Sri Lanka, despite being in the cusp of an upper middle income country, lags behind lower income countries in these regards.