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Monthly Economic Update - April 2020

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3 KEY INSIGHTS

  • Sri Lanka’s Economy Grows only 2.3% in 2019; Expectations for a recession in 2020 

  • Expected Global Contraction due to COVID-19 will be much worse than the Global Financial Crisis: IMF

  • Global Oil Prices Drop to a Record Low mainly due to Insufficient Storage Facilities

 

Sri Lankan Economy

Economy grows only 2.3% in 2019; COVID-19 Adds More Challenges to the Outlook: Sri Lanka recorded only a 2.3% economic growth during 2019; the lowest growth for 18 years, mainly due to the 21st April attacks. COVID-19 pandemic has further added more challenges to the growth outlook with expectations of a contraction in 2020. IMF and World Bank forecasts growth at -0.5% and -3% to -0.5% respectively). Meanwhile CBSL expects 1.5% growth.

LKR Depreciates against USD, peer countries weaken more: During 2020 so far, LKR has depreciated by 5.8% against the USD. However, the weakness is less than some of the regional currencies like the Indian rupee, Indonesian rupiah and Thai baht.

Significant Outflow of Foreign Holdings in Government Securities: Since March 2020, foreign holdings in government securities declined by 73% to LKR 25 Bn.

A Drastic Drop in PMI-March 2020: Both the manufacturing and services PMIs contracted significantly due to the adverse impact of the COVID-19 pandemic, registering an all-time low index value during March 2020.

Fitch Downgrades Sri Lanka with a Negative Outlook: Fitch Ratings has downgraded Sri Lanka’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) to ‘B-‘from ‘B’. The outlook is negative due to the stress the economy is facing due to COVID-19.

 

Global Economy

Expected Global Contraction due to COVID-19 will be Much Worse than the Global Financial Crisis-IMF: The global economy is projected to contrast sharply by 3% in 2020 as a result of the COVID-19 pandemic. This contraction is much worse than during 2008-09 financial crisis as stated by the IMF.

Gloomy Outlook for Global Trade: WTO expects that Global trade will fall between 13% and 32% in 2020 due to the COVID–19 pandemic as it disrupts normal economic activity and lifestyle around the world.

Global Oil Prices Drop to a Record Low in April: Price of US Crude oil fell negative for the first time ever due to excess supply and lack of storage facilities. This was the deepest monthly drop since Global Financial Crisis 2008/9. Brent oil price has fallen by 66% in 2020 so far to $22 a barrel. 

 

 

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Research Analyst - Economic Intelligence Unit, The Ceylon Chamber of Commerce

Saumya Amarasiriwardane

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