Economy surges in 4Q23, narrowing full year contraction to 2.3%

• 4Q23 GDP growth at 4.5%, up from 1.6% in 3Q
• Output grows 3.04% in second half last year
• Authorities upgrade first and second quarter growths
• All three economic sectors register growths pointing to normalising economy

Sri Lanka’s economy surged in the fourth quarter, marking a swift recovery from the prolonged recession that began 18 months ago. The growth rate exceeded expectations, outpacing third quarter’s performance. 
Sri Lanka’s full-year contraction narrowed to 2.3 percent, a significant improvement from the steeper 7.3 percent contraction recorded in 2022.
According to the Census and Statistics Department which released the national accounts data for the final quarter last year, Sri Lanka’s economy has staged a growth of 4.5 percent, a much stronger growth than the 1.6 percent recorded in the third quarter.
With consecutive growth in the final two quarters of last year, Sri Lanka has recorded an overall 3.04 percent economic growth in the latter half of 2023. This is a significant turnaround from the 7.3 percent contraction experienced in the first half, when the country was still grappling with the effects of the 2022 currency crisis.
When releasing the fourth quarter GDP data, the authorities revised up the growths in both the first and second quarters of last year. The first quarter growth was revised from a negative 11.5 percent to negative 10.7 percent while the second quarter decline had been cut from negative 3.1 percent to negative 3.0 percent while leaving the third quarter estimate unchanged.
This helped the nine months growth to come in at a negative 4.5 percent from an earlier estimated 4.9 percent.
Despite the fresh risks from the January hike in the value added tax and other supply chain disruptions seen at the beginning of the year, Sri Lanka appears to be extending its expansion well into 2024 as both business and economic sentiments are improving, the data showed.

There is broad base consensus for 2 to 3 percent growth in the Sri Lankan economy in the current year followed by over 5 percent growth in 2025 with the absence of major disruptions to the policy path.  

In the fourth quarter, the three key economic activities – agriculture, industrial and services – recorded growth rates of 0.6 percent, 7.9 percent and 2.8 percent respectively while the taxes less subsidies recorded a growth of 14.9 percent, all from the same quarter in 2022.
Meanwhile, for the full year the agriculture grew by a modest 2.6 percent but industries and services contracted by 9.2 percent and a mild 0.2 percent respectively.
The prolonged decline in construction and manufacturing activities in the economy due to high input cost and the borrowing cost led the decline in the industries. Meanwhile, the decline in IT programming consultancy and related activities followed by financial services, real estate and dwelling and telecommunication services contributed to the slight decline in the services sector in 2023.

The three sectors contributed 8.3 percent, 25.6 percent and 59.9 percent each to the economy in 2023 although in the final quarter services’ share expanded to 63.2 percent while the industry’s share narrowed to 21.0 percent.