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MONTHLY ECONOMIC UPDATE - MAY 2019

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3 KEY INSIGHTS

  • Trade Deficit falls sharply in the first quarter due to decline in import expenditure and growth in export earnings.

  • In one month since the attack, LKR holds steady while yields on government securities decline on expectation of monetary easing.

  • World trade growth is likely to remain weak in Q2- 2019 due to heightened trade tensions.

Sri Lankan Economy 

Trade Deficit Contracts Sharply in Q1-2019: Drop in import expenditure by 19.3% and rise in export earnings by 5.6% resulted in a 44.3% contraction of the trade deficit during Q1-2019 compared to the same period last year.

IMF Program Resumes: The IMF resumed its program with Sri Lanka and extended it by a year to provide a policy anchor to complete the economic reform agenda. The resumption made available about USD164.1Mn, bringing total disbursements under the arrangement to about USD1.15 Bn.

Impacts post Terror Attacks: The government will await revenue figures from the April-June quarter before prioritizing expenditure in the second half of 2019 following the impact of the terror attacks. The LKR (spot) has only depreciated 0.8% against the USD since 18 April 2019 while it has strengthened 3.8% since the start of the year. Fitch ratings expect GDP growth for 2019 to be 1-1.5% lower than its 3.6% forecast from its last review in December 2018. The Manufacturing PMI fell to an all-time low in April 2019 but the decline in the index during April is in line with historical trend in the last 3 years.

Yields on T-bills decline as policy announcement expected tomorrow: The yield on T- bills have been on a declining trend falling over 1% in the last the four weeks. Recent sharp fall is on expectation of a policy rate reduction at the next monetary policy announcement on 31 May 2019.

Global Economy

World Trade growth is Likely to Remain Weak in Q2-2019: WTO expects the world trade is likely to remain weak in Q2-2019 as per the latest reading of WTOI. There are significant downside risks to the 2019 forecast and the outlook for trade could worsen further if heightened trade tensions are not resolved or if macroeconomic policy fails to adjust to changing circumstances.

More Tariff Hikes between the US and China: On 10th May, the US increased tariffs on USD 200 Bn worth Chinese goods from 10% to 25%, with effective from 10th May and in response to this on 13th May, China announced that it will increase tariffs on USD 60 Bn worth of US goods from 1st June 2019.

Global Oil Price records biggest weekly drop last week: Oil price fell during the most this year during the fourth week of May on concerns with regards to global growth and impact from the on-going tariff tensions between the U.S. and China.

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The Ceylon Chamber of Commerce

Economic Intelligence Unit

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