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Monthly Economic Update - June 2020

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3 KEY INSIGHTS

  • Sri Lanka’s GDP is likely to contract by 3.2% in 2020: World Bank (WB)

  • PMI Bounces back in May with resumption of economic activities

  • WB expects a 5.2% contraction in global GDP in 2020 -the deepest global recession in eight decades

 

Sri Lankan Economy

Trade Deficit Widened in April: Exports declined mainly due to the imposition of the partial lockdown, meanwhile imports declined with disruption to import related supply chains and restrictions imposed on non-essential imports by the government and the Central Bank. As the decline in exports exceeded the decline in imports, trade deficit widened by 5% on a Y-o-Y basis.

Sri Lanka’s GDP is likely to shrink by 3.2% in 2020: Considering the combined impact of falling tourism, manufacturing activity and services with the COVID-19 pandemic, the World Bank is projected an output contraction of 3.2% in 2020, despite the earlier recovery from the April 21st attacks.

The Budget Deficit to expand significantly in 2020, with the Economic Slowdown: The budget deficit is expected to expand to 8.5% of GDP in 2020, with the slowdown of economic activities triggered in the Q2 of 2020, the Ministry of Finance stated in their annual report for 2019.

CBSL Further Reduces the SRR: CBSL reduces the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of licensed commercial banks (LCBs) by 200 basis points to 2.00 per cent, with effect from 16 June and with that the CBSL has cut the SRR by a total of 300 basis points thus far during 2020.. 

PMI-May Recorded a Noticeable Bounce: Manufacturing sector PMI recorded a noticeable bounce in May 2020 reaching to 49.3, from the all-time low of 24.2 recorded in April 2020. Meanwhile services PMI rebounded significantly to 43.1 with the gradual easing of restrictions on mobility.

 

Global Economy

The Deepest Global Recession in 8 Decades: The World Bank forecasts a 5.2% contraction in global GDP in 2020, the deepest global recession in eight decades, despite unprecedented policy support.

2.7% GDP Contraction is projected for South Asia: The World Bank expects that GDP in the South Asian region will contract by 2.7% in 2020.

US Economy Plunges in Q1-2020: US GDP fell 4.8% in  Q1-2020, reflecting the deep damage COVID-19 wreaked on the US economy. This was the first negative reading since Q1-2014, though not as bad as the worst of the global financial crisis.

Global Oil Prices Continue to Climb: Global oil prices recovered gradually in May and June, however a renewed COVID-19 outbreak in China may jeopardize the recovery. 

 

 

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

Saumya Amarasiriwardane

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