EIU - December 2018
Sri Lankan Economy
Growth slides further in 3Q: GDP growth fell to 2.9% in the third quarter of 2018 compared to a 3.2% growth in the corresponding quarter of 2017. Growth was driven lower due to a growth of 1.9% in the Industry sector in comparison to 5.3% recorded in 2017. GDP growth for the first nine months of 2018 stood at 3.3%.
Recent Political Uncertainty to Cloud Growth Prospects: Asian Development Bank stated that the recent political uncertainty will cloud Sri Lanka’s growth prospects in the short-term, in its Asian Development Outlook 2018 supplement.
External Sector under Pressure in September: Higher growth in import expenditure (6.1%) outpaced the increase in export earnings (4.4%) which saw a widening of the trade deficit. The strengthening of the USD resulted in outflows of portfolio investments which adversely impacted the Balance of Payment during September 2018.
Reserves drop sharply in November: Sri Lanka’s foreign exchange reserve declined by USD 885 Mn in November amidst currency pressure and foreign outflows from Sri Lanka’s bond and equity markets.
CCPI Headline Inflation Picks up in November: CCPI headline inflation rose to 3.3% in November from 3.1% in October and the growth was driven by price increase of food items, particularly vegetables. However, the CCPI core inflation contracted to 3.4% in November from 3.8% in October.
Tourist Arrivals for 2018 Reached 2 Mn Mark in November: The cricket loving Barmy Army from the UK boosted tourist arrivals to Sri Lanka in November, registering a growth of 17% to 195,582 with arrivals from UK soaring by 61% to 22,000. Total arrivals during the first eleven months of the year reached the 2 million mark to finish at 2.08 Mn in November 2018.
Fitch and S&P downgrades Sri Lanka’s Ratings due to Political Turmoil: Fitch downgraded Sri Lanka’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’, with a stable outlook while Standard and Poor (S&P) downgraded Sri Lanka speculative ‘B+’ rating to ‘B’. Along with Moody’s downgrade in November, all 3 Rating agencies now place Sri Lanka in the same level under the highly speculative category.
FDI Inflows Doubled during the First Nine Months: FDI inflows to Sri Lanka during the first nine months of 2018 registered a 1.3 fold increase to USD 1,856 Mn from USD 796 Mn recorded during the corresponding period of 2017. Considering the historical data, this is the highest ever FDI inflow to Sri Lanka in the first nine months of a year and even for a full year.
Labour Force Participation Contracted in Q2-2018: During Q2 of 2018, the labour force participation rate has declined to 51.1% from 52% in the previous quarter and 53.9% in Q2 of 2017. Meanwhile the unemployment rate increased marginally to 4.6% from 4.5% in the previous quarter when compared to Q2 of 2017.
Global Oil Prices Fell: The OPEC Reference Basket ended November down by USD 14.06, or 17.7% Month-on-Month (MoM) to average USD 65.33 per barrel, its lowest level since last March. Crude oil futures dropped in November amid weaker market fundamentals as the market focused on global oil supply, which rose faster than expected. ICE Brent was on average USD 14.68, or 18.2% MoM lower to USD 65.95 per barrel.
US-China Agreed to Trade War Ceasefire: US and China recently agreed to suspend any new tariffs for a period of 90 days in the escalating trade war between the world’s two largest economies.
Outlook for Asia Firms as Trade Conflict Pauses: ADB stated that, growth forecasts for developing Asia remain unchanged at 6% for 2018 and 5.8% for 2019 despite the trade conflict.