Exchange rate stability and price softening propelled economy out of recession: Statistics office

The favourable movement or largely stable exchange rate and softening prices, which had sprinkled a cooling effect on supply chains, had a substantial positive impact on pulling the economy from a prolonged recession in the third quarter, said the Department of Census and Statistics (DCS). 
Sri Lanka’s gross domestic product (GDP) or the total value of goods and services produced by the economy rebounded by a modest 1.6 percent in the July-September quarter, kindling hopes for a sustained economic recovery. 

Issuing a statement on what predominantly caused the turnabout in the economy after six quarters of contraction, the DCS said it was mostly the availability of foreign exchange and the slight appreciation in the exchange rate, which helped bring down the input cost of the produce. 
“The third quarter of year 2023 began with the favourable change in uncertainties in foreign exchange, which were observed in the previous quarters and the economy and its expectations about the future had been growing at a lower rate, was transformed into a positive state,” the DCS said.
The 3Q GDP reading was a clear indication that Sri Lanka is recovering from the worst shortage in foreign currency, which sent ripples through the economy as the prices and rates surged to exponential levels while creating prolonged shortages of commodities. 

As remittances and tourism inflows are largely being restored alongside the other inflows coming with the unlocking of the International Monetary Fund programme in March this year, the economy has been making gradual progress. 
Until a deal with the country’s foreign creditors to restructure the debt is finalised, Sri Lanka has suspended most of its foreign currency loan repayments.
This helped to restore some normalcy in the foreign exchange markets, enabling the flow of imports, which are required to power the industries and thereby enabling them to return to their normal production schedules, albeit at a lesser scale as demand still remains muted.

The DCS also credited the easing interest rates for the third quarter turnaround in the output. 
The monthly private sector credit data and earnings reports from the banks for the third quarter reinforced that the money is once again beginning to flow back into the real economy by way of loans, as the banks are starting to reopen their lending taps with caution. 
Meanwhile, the DCS also highlighted the rapid recovery seen in the tourism trade and what it is doing to reactivate many other economic activities, which stood virtually dormant from 2020 onwards, adding another tailwind to increase economic output. 
The rising tourism industry has in turn helped the country’s accommodation sector, which for many years went into bare minimum activity and also the food and beverage sector, which was hammered by the demand destruction policies since last year and also the shortages