Monthly Economic Update: July 2021

3 KEY INSIGHTS

  • GDP Growth Rebounds in Q1-2021
  • USD 1 Bn Sovereign Bond Repaid in July
  • Global Trade to Expand by 8.3% in 2020, amidst high trade and shipping costs

Sri Lankan Economy

Global Economy​

GDP Growth Rebounds in Jan-March 2021 quarter: Sri Lanka’s economy recorded a growth of 4.3% during Q1 of 2021, compared to the contraction of 1.8% recorded in same period of last year. Agriculture and Industry grew much higher than in Q1-2019 while Services also recovered during the quarter.

Sri Lanka Settles USD 1 Bn ISB: Sri Lanka has settled the USD 1 Bn International Sovereign Bond, which was due on 27th July 2021 utilizing gross official reserves. In 2022, Sri Lanka has two more ISBs to repay totaling to USD 1.5 Bn.

Trade Deficit Widened Notably in May: Both exports and imports were significantly higher in May 2021 compared to May 2020, due to statistical effect of the pandemic related disruptions in 2020. Trade deficit widened by 76% in May 2021 in comparison to the same period of last year driven by fuel imports.

PMI Recovered in June: Purchasing Managers’ Index for both Manufacturing and Services activities recovered marginally in June this year, after experiencing a contraction even below the 50 index point benchmark in May due to the adverse impact of the third wave of the COVID-19 pandemic.

Regional Growth will depend on the Progress of Vaccinations: The output of the South Asian Region (SAR) is expected to expand by 6.8% in 2021 with the outlook dependent on the progress of the vaccinations. If the vaccination does not proceed as quickly as assumed, the outlook could be weaker as stated by the World Bank.

Global Trade to expand by 8.3% in 2020, amidst high trade costs: Global trade growth is hampered by high trade costs which primarily arise from transportation expenses and cumbersome customs procedures, and are likely to have increased further as a result of protectionist measures. Even in this backdrop, World Bank expected an expansion of 8.3% in global trade in this year.

Freight Rates Continue to Climb: Freight rates continued to rise with the Drewry World Container Index, which tracks the cost of a 40-foot container rising close to US$ 10,000 from about USD 2,000 a year ago. Rise in rates have been driven by supply chain disruptions that have weighed in on global trade and pent-up demand with the world economy recovering from the pandemic. Further the pandemic has limited the operations of workers across most ports.

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