Macro Analysis /
Sri Lanka

Sri Lanka 2Q GDP growth in line; services face brunt of 21/4 impact

    Lakshini Fernando
    Asia Securities
    19 September 2019
    Published by

    The Sri Lankan economy grew by 1.6% YoY in 2Q CY19, coming in 0.1pp above our forecast of 1.5% for the quarter. The negative impact following the Easter Sunday attacks was evident in the services sector, which recorded the lowest growth for a April-June quarter since 2010. 

    The industries sector also recorded muted growth, which in our view, was mainly due to the extended closure of factories in April owing to the New year holidays and Easter Sunday attacks. The agri sector showed signs of an impact from the drought conditions experienced in most part of the island. 

    We believe the current political uncertainty and 50bps cut in key policy rates so far will leave little room for the Central Bank to loosen policy rates further for the remainder of 2019.

    We expect government policies like the increase in public sector wage hike, Samurdhi and pension concessions to help boost consumer-led growth in 2020. We expect 3Q 2019 to record an improvement in overall growth given the loose monetary policy but, expect the heightened political uncertainty to have a negative impact. As such, we expect 3Q 2019 growth to come in at 1.9% YoY. 

    We maintain our GDP forecasts of 2.5% YoY for 2019, 3.8% in 2020 and 4.3% in CY20E.