Bloomberg forecast on SL slightly positive

Bloomberg’s regular economic forecast on Sri Lanka showed a sense of relative optimism for 2014 on many indicators, though they remained below the Central Bank’s overly ambitious estimates for the ensuing years.

“When asked, ‘ What is the percentage chance of a recession happening over the next 12months?’ the median estimate of 3 economists who responded, put the odds at 2 percent,” the international news wire service said.

Bloomberg’s quarterly economic survey conducted from January 22 to 28 based on a median of nine economists forecasted a 6.9 percent GDP growth for 2013, a slight uptick from the previous forecast of 6.5 percent. This is despite the Central Bank’s expected GDP growth of 7.2 percent for the same year.

While their GDP forecasts for 2014 and 2015 too are relatively progressive from earlier surveys at 7.00 percent, they are significantly below the Central Bank’s 7.8 percent and 8.2 percent projections.

Headline inflation, current account deficit and budget deficit too share similar observations to that of GDP forecasts.

The gover nment headline inflation figures which showed a downward trend during the recent months was forecasted to remain at 6.5 percent in 2014 and 2015, respectively.

Despite the commendable efforts to contain the fiscal deficit to at least 5.8 percent in 2013, the survey respondents do not see the deficit coming down below 5.5 percent of GDP in 2014, although the government is confident in bringing this down to 5.2 percent.

Meanwhile the survey respondents expect a further 25 basis points cut in Standing Lending Facility Rate (SLFR) or the Reverse Repurchase Rate to 7.75 percent in end 1Q14 further compressing the policy rates corridor to 125 basis points.

This forecast on policy rates came as an endorsement to this week’s Standard Chartered Bank’s sentiments which predicted another rate cut by end 1Q, if the private credit doesn’t pick up as envisaged by the Central Bank.

Economists interviewed by Bloomberg however expect an overall monetary tightening for 2014 where the Standing Deposit Facility Rate (SDFR) which replaced the Repurchase Rate at 7.00 percent and SLFR at 8.25 percent.

Quite contrary to the Central Bank’s intentions to drive the country into a lower interest rate environment, the survey results suggest the SDFR at 7.5 percent and SLFR at 8.75 percent in 2015, a further hike from 2014.