Economy contracts 1.5% in third quarter

• Re-emergence of virus, import controls and higher prices thwart economy from recovery
• Nine-month growth estimated at 4.4%, keeping 5% full-year growth target in sight 
• Agriculture becomes only sector to record growth in 3Q
• Industrial activities contract 2.1% on slump in construction and weak manufacturing
• Services decline by 1.6% due to restrictions on mobility and in-person activities 

Sri Lanka’s economy contracted 1.5 percent in the July-September quarter from a year ago, as the recovery set forth in the same period last year was beset by the fresh lockdowns, acute shortage in foreign currency liquidity and soaring prices. 
The economy staged a quick rebound in the same period last year after the successful containment of the first wave of the virus, propelling the output in the third quarter in 2020. 
Hence, the economic output of the third quarter 2021 came below the corresponding quarter’s levels, reflecting what is known as higher base effects.
The Department of Census and Statistics (DCS) measured the third quarter gross domestic product (GDP) at Rs.2,497,489 million at current prices, compared to Rs.2,536,490 million in the comparable quarter in 2020. 
The reverse happened when the economy grew by a stunning 12.3 percent in the second quarter of 2021, due to the lower base effects prevailed during the same period, last year, when the economy contracted by 16.4 percent.
With the third quarter GDP contraction, Sri Lanka’s economic growth for the first nine months was measured at 4.4 percent or Rs.7,062,011 million, bringing the full-year growth in sight of the 5.0 percent projected for 2021. 
The sector-wise GDP reflects the pandemic’s impact and to what extent the foreign exchange liquidity shortage and its spill over effects crimped the overall economic output for the quarter. 
For instance, the agriculture sector managed to record a slower 1.7 percent growth, as it was among a few other sectors allowed to operate unhindered amid the lockdowns. 
Meanwhile, several manufacturing industries, construction and selected services were allowed to operate with the objectives of maintaining essential commodities supply chains, preserve foreign exchange and ensure household incomes. 

However, the industrial and services activities contracted by 2.1 percent and 1.6 percent, respectively from the same quarter last year, partly reflecting the impact of mobility restrictions and partly due to the import restrictions imposed to preserve foreign exchange. 
“At the same time, increased input prices of producers, due to import restrictions imposed as a solution for declining foreign money reserves, also contributed to the slowdown in economic activity,” the DCS said.
The industrial activities were weighed down by the manufacturing sub-sector, which contracted by 0.6 percent but what was more surprising was the 6.0 percent contraction recorded by the construction sub-sector, which accounts for 6.7 percent of GDP. 
Meanwhile, the growth in the services sector activities, which are typically associated with the virus-related restrictions, turned negative by the disruption in transportation of goods and passenger services activities and other personal services activities, each accounting for 9.5 percent of the overall GDP.