Sri Lanka’s economic growth in the second quarter of this year likely expanded by 6.7 percent year-on-year, slowing from 8.2 percent a year earlier, a Reuters median forecast of 10 analysts showed ahead of the official data release on recently.

Many analysts cited an extended drought and tough policy measures early this year forthe slowdown in growth and they expect full-year growth to ease to 6.6 percent yearon-year from a record 8.3 percent last year.

The Central Bank has raised key policy rates twice since February to more than twoyear highs, restricted banks’ lending, and allowed flexibility in the rupee exchange rate in a bid to reduce the trade deficit and avert a balance-of-payments crisis.

The $59 billion economy’s external performance has already taken a beating due to the measures.

“I won’t be surprised even if second quarter GDP slows down to 6 percent,” Sirimal Abeyratne, senior economics professor at Colombo University told Reuters, adding that slower domestic growth partly reflected a global slow-down.

“There has been drought in the second quarter in addition to those tough policy measures.” Many analysts said the key for this year’s growth will be industrial output, which accounts for 80 percent of total exports. The sector has fallen 6.1 percent year-on-year in the first seven months.

Last week, Treasury Secretary P.B. Jayasundera said Sri Lanka’s growth this year may range between 6.7 percent and 7.2 percent depending on the impact of the drought that has lasted since the beginning of the year.

In June, the International Monetary Fund forecast the island nation’s economic growth at 6.75 percent this year, down from an earlier estimate of 7.5 percent and less than the central bank target of 7.2 percent due to tough policy measures implemented since February.

In March, the central bank revised down the full-year growth target to 7.2 percent from an original 8 percent due to strong measures taken to curb the trade deficit, which doubled last year to a record $9.7 billion.

(Source : REUTERS)