Growth this year likely to stagnate at 2%: economist

• LKI Executive Director Dr. Wignaraja says best-case scenario will be SL achieving 2.5% growth 
• CB revised down growth outlook to 3%, from earlier 4%, after Easter Sunday attacks
• However, CB Governor Dr. Coomaraswamy ruled out any growth projections below 3%
• Economy grew 3.7% in first quarter this year; higher growth expected in fourth quarter 

By Nishel Fernando

A leading economist in the country predicts a gloomy economic outlook for this year with economic growth stagnating at 2 percent, in the aftermath of the Easter Sunday 
attacks on April 21.

“In 2019, we may expect 2.5 percent growth if we get lucky. However, 2 percent growth more likely,” Lakshman Kadirgamar Institute Executive Director Dr. Ganeshan Wignaraja told a recent panel discussion in Colombo.

The Central Bank revised the growth outlook to 3 percent, from the original 4 percent projection early this year, after considering the economic impacts of the Easter Sunday attacks. 

Similarly, HSBC also cut its growth projection for Sri Lanka to 2.7 percent this year, from the previous estimate of 3.4 percent, while noting that the recovery in the Sri Lankan economy is unlikely until the much-anticipated presidential and parliamentary polls are held to end the current policy and political impasse.  

Central Bank Governor Dr. Indrajit Coomaraswamy however ruled out any growth projections below 3 percent at the last monetary policy review, emphasising that the growth would accelerate in the fourth quarter. 

“In the first quarter, there was a 3.7 percent GDP growth, certainly the second quarter is going to be disappointing. 

However, for the fourth quarter, there are very favourable benefits. In the fourth quarter of last year, the growth was 1.8 percent and that will provide a base effect, which will become favourable this time around,” he said.

The tourism industry and investor sentiment has been severely impacted by the Easter Sunday attacks.

The tourism earnings up to July this year declined by 18.7 percent year-on-year (YoY) to US $ 2.1 billion, from US $ 2.6 billion recorded during the same period of last year. 
However, Sri Lanka’s tourism authorities are confident of achieving 80 percent of last year’s tourist arrivals.

Sri Lanka earned US $ 4.4 billion in foreign exchange from the tourism sector, last year.

Although direct employees of tourism are estimated at over 400,000, the tourism authorities said that the sector employs over one million people both directly and indirectly.   
In terms of foreign direct investment (FDI), the Board of Investment (BOI) plans to revise its initial FDI target of US $ 3 billion for this year, as the investor sentiment tanked due to the Easter Sunday attacks.  

The BOI is currently in the process of assessing investment data for the second quarter to revise the FDI targets for the year. 

On a positive note, the credit extended to the private sector increased by Rs.63.2 billion or 17.5 percent YoY in June 2019.

According to the Central Bank data, the factory output picked up pace in June, as activities returned to normalcy after the Easter Sunday attacks with employees returning to work and production gathering steam after two months of paralysis across sectors in April and May. Sri Lanka’s economy grew at the lowest pace last year since 2001, recording a 3.2 percent growth, overshadowed by the 51-day political impasse.