Economy in 1Q picks up to 3.5%: Mangala

(Colombo) REUTERS: Growth in Sri Lanka’s economy picked up to 3.5 percent in the first quarter from 1.8 percent in the previous three-month period, Finance Minister Mangala Samaraweera said yesterday.

Economic growth in the island nation’s 2018 fourth quarter had slowed to a nearly four-year low as a 51-day political crisis took a toll on the industrial sector.The political crisis created panic and uncertainty among investors, who dumped Sri Lankan government bonds and other assets, sending the rupee currency to record lows.

The industrial sector, accounting for more than a quarter of the economy, had contracted 3.6% in the fourth  quarter of 2018.

“Under our government, we took the real growth to the villages the economy in the first quarter grew at 3.5 percent against 1.8 percent last quarter, which was hit due to the political crisis,” Samaraweera told Parliament.

The sluggish quarterly growth dragged the country’s annual expansion to a 17-year low of 3.2 percent in 2018, compared with 3.4 percent in the previous year.

Last month, the Central Bank Governor Indrajit Coomaraswamy said he expected the economy to grow by 3 percent or less this year, dented by the impact of the Easter  Sunday bombings.

The Central Bank was preparing a downward revision to its earlier projection of 4 percent growth.

Sri Lanka’s economic growth is expected to slump to a nearly two-decade low this year, a Reuters poll showed, as tourism, foreign investment and overall business activity eased sharply in the wake of the bombings.

Security in Sri Lanka has been ramped up since the April 21 attacks by Islamic militants, who killed over 250 people including 42 foreign nationals in churches and hotels across the country. Tourism, which accounts for 5% of the country’s gross domestic product, has suffered as travellers from around the globe cancelled hotel and flight bookings. The Islamic State had claimed responsibility for the attacks.

Stocks at 1-week low; rupee weakens

Sri Lankan shares dropped to a one-week low yesterday as foreign investors exited from the island nation’s risky assets, while the rupee ended weaker on dollar demand from importers. 
The benchmark stock index ended 0.17 percent weaker at 5,375.60, its lowest close since June 11. The bourse rose 1.61 percent last week, but has dropped 11.18 percent so far this year. The government’s pension fund has resumed investing in risky assets as the stock market is “extremely undervalued at the moment and is considered a good time to go in”, the Central Bank Governor said last month at its monetary policy meet.

 Yesterday’s stock market turnover was Rs.1.1 billion (US$6.23 million), twice this year’s daily average of about Rs.550.7 million. Last year’s daily average was Rs.834 million. 
Foreign investors sold a net Rs.106.3 million worth of shares yesterday, extending the net foreign outflow for the past seven days to Rs.522.6 million. The year-to-date net foreign outflow now stands at Rs.6.04 billion. 

Meanwhile, the rupee ended at 176.80/85 per dollar, compared with Monday’s close of 176.75/85, market sources said. 

Analysts expect the rupee to weaken further as money flows out of stocks and government securities. 

The rupee fell 0.14 percent last week, but is up 3.28 percent for the year. Exporters had converted dollars as investors’ confidence stabilised after US$1 billion sovereign bond was repaid in mid-January. 

The rupee dropped 16 percent in 2018 and was one of the worst-performing currencies in Asia. 

Foreign investors bought a net Rs.311 million worth of government securities in the week ended June 12, but the island nation’s net foreign outflow was at Rs.21.6 billion so far this year, the Central Bank data showed.