CB forecasts over 2% growth in 2Q

• Says manufacturing and agricultural activities remain untouched by Easter bombings 
• Hopeful of over 3% growth this year on faster growth in 4Q due to base effect

The Central Bank estimates that the economy has grown by around 2.1 percent in the second quarter of this year despite the economic impacts of Easter Sunday attacks.  “As per our estimates, the second quarter growth will be little over 2 percent, around 2.1 percent” Central Bank Governor Dr. Indrajit Coomaraswamy said. 

Even though the tourism sector took a massive hit from the Easter Sunday attacks, he noted that the impacts to other sectors of the economy including services were short-lived and re-bounded soon.

In particular, he pointed out that manufacturing and agriculture sector activities remained almost untouched by Easter attacks. 

The Governor was confident Sri Lanka will be able to reach 3.1 percent economic growth for the year, betting on faster growth in the fourth quarter due to base effect from low growth of 1.8 percent in 4Q18. However, he pointed out that high lending interest rates coupled with elevated uncertainties have  impacted private sector credit growth, slowing down business activities. 

Sri Lanka’s private sector credit growth continued to decelerate to 7.7 percent Year-on-Year (YoY) in July compared to 8.7 percent in the previous month, which was also the lowest growth rate witnessed since December 2014. The private sector credit also declined in absolute terms by a marginal Rs.1.2 billion in July after a significant increase of Rs.63.2 billion in June.  In particular, credit decelerated to agriculture, industry and services sectors in the second quarter while consumption-based loans accelerated. 

The cumulative increase in private sector credit stood at Rs. 42.5 billion during first seven months of the year.

Sri Lanka’s economy grew by 3.7 percent YoY in the first quarter of this year. 

Moody’s forecasts sharp growth slowdown in 2Q

Moody’s Investors Service in a new report said Sri Lanka’s economic growth in the second quarter of this year is set to slow significantly following the Easter bombings in April. “We expect Sri Lanka to face a marked cooling in 2Q, reflecting a slump in tourism following the terrorist bombing in April,” Moody’s said. The rating agency said Sri Lanka’s economic growth is forecast to slow to 2.6 percent in 2019 and pick up again to 3.4 percent in 2020, having grown 3.2 percent in 2018 and 3.4 percent in 2017. 

In the report, Moody’s revised down growth forecasts for 16 economies in the Asia Pacific. 

The rating agency pointed out that weaker global economy has stunted Asian exports and the uncertain operating environment weighed on investment. 

“In particular, softer capital formation has mirrored the weakening in exports, especially for trade-reliant economies such as Korea and Hong Kong.”

“As for the Philippines, the delay in the passing of the government budget has disrupted its infrastructure build-out, while in Malaysia and Sri Lanka, fiscal tightening has posed drags.”
Moody’s also said the slower overall GDP growth in the region has not yet weighed significantly on broader employment conditions, while generally benign inflation supports purchasing power across Asia Pacific.