Economy projected to shrink over 8%

Revising earlier projected 7.5 percent economic contraction for the year, the Central Bank (CB) fears that the economy could shrink by over 8 percent this year mainly due to the lasting impact of supply side disruptions and uncertainties associated with socio-political developments in the second quarter.

“Earlier, we projected 7.5 percent economic contraction. It looks like it’s going to be little more than 7.5 percent and probably it will reach over 8 percent. However, it also means that we can expect a strong economic recovery from the second half of next year,” CB Governor Dr. Nandalal Weerasinghe said. The CB highlighted that the impact of persisted supply side disruptions and uncertainties associated with socio-political developments in the second quarter of the year 2022 have had significant adverse effects on economic activity.

The CB projects the economy to contract in both second quarter and third quarter of the year.
However, the Governor pointed out that the outlook could change, in particular with developments in industries such as tourism.

With the expected stabilisation of macroeconomic conditions and the implementation of structural reforms combined with low-base effect, the economy is expected to rebound strongly next year.