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ECONOMIC UPDATE - FEBRUARY 18

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EIU-February 2018

  The SNAPSHOT  

Sri Lankan Economy
 

Exports: Reached an all-time-high of USD 11.4 billion, recording a Y-o-Y growth of 10.6% in 2017. This was attributed to the restoration of the GSP+ facility by the European Union, favorable prices for commodities in the international market and the flexible exchange rate policy maintained by the Central Bank.

Imports: In November 2017 recorded the highest value since November 2011. This increase was attributed to the significant increase in fuel import bill on account of higher prices in international markets and increased in import volumes.

Trade Balance: The deficit in the trade balance expanded by 8% to USD 999.5million in November 2017 on Y-oY basis while trade deficit on a cumulative basis also widening during the first eleven months of 2017 in comparison to the same period of 2016.

Inflation: Headline Inflation (CCPI) recorded a sharp decline from 7.1% in December 2017 to 5.8% in January 2018 with considerable slowdown in food inflation. The Central Bank is expecting the NCPI also to record a substantial decline in January 2018 and both headline and core inflation to stabilize in the desired mid-single digit level during the remainder of 2018.

Policy Rates: The Monetary Board of the Central Bank of Sri Lanka (CBSL) in their first policy review meeting for 2018 held in January decided to keep policy rates unchanged.

Political Uncertainty:  The results of the recent Local Authority elections which took place during the second week of February has raised concerns over the future stability of the unity government. This uncertainty coupled with an unfavorable global environment saw the rupee depreciate during the month of February.

ETCA Negotiations: The 8th round of negotiations of the proposed Economic and Technology Cooperation Agreement (ETCA) with India is taking place this week in New Delhi, India. 

The Global Economy

Oil Prices: The OPEC Reference Basket increased for the fifth-straight month in January, gaining a sharp 7.7% to average USD 66.85 per barrel. This is the highest monthly average since November 2014. Oil prices were supported by continuing efforts by OPEC and participating non-OPEC producers to balance the market.  There were ten consecutive week of crude inventory declines amid healthy economic growth and improving oil demand. 

Trade: Latest World Trade Outlook Indicator (WTOI) of the World Trade Organisation in mid-February, indicated that the trade recovery of 2017 should continue with solid trade volume growth in the Q1 of 2018.

China: Imports surged to a 36.9% expansion during January 2018 over January 2017. This was the strongest expansion since March 2017 and largely reflect the distortion related to the Lunar New Year Holidays, which occurs in mid-February 2018. 

  External Sector Performance - November 2017  

Exports

Imports

  Key Macroeconomic Indicators  

  Further Insights - Sri Lankan Economy    

60% of the Country’s Districts were in Poverty 
According to the recently released district wise poverty line data by the Department of Census and Statistics, 60% of the country’s districts were in poverty for the 25th consecutive month as of January 2018.

The poverty line is estimated at LKR 4,580 in January 2018 down from LKR 4,584 in December 2017. Monaragala continued to be the poorest district with a minimum expenditure per person per month to full fill basic needs reported at LKR 4, 316 while Colombo remained the richest district recording LKR 4, 972.  

Note: Poverty line is the minimum expenditure per person per month to fulfill the basic needs.  

Foreign Holdings in Government Securities Declined Just After LG Polls 
Foreign investors sold LKR 8.14billion worth of government securities as at 14th February compared to the foreign holdings as at 30th January 2018. This was a marginal decline of 2%. Emerging markets volatility coupled with uncertainty post the 10th of February local election could have attributed to this decline. There was a steady uptick in foreign holdings in government securities from March to November 2017.  


However, the value of foreign holdings recorded at February 2018 is 64% higher, compared to the value of LKR 196 billion recorded during the same period in the previous year. 

Exports Grew to an All-Time Record in 2017 

Merchandise exports of Sri Lanka recorded an all- time- high in 2017 with an export value of USD 11.4billion, surpassing the previous high of USD 11.1billion achieved in 2014. This is a growth of 10.6% on a Y-o-Y basis. According to the Central Bank of Sri Lanka, this growth was largely supported by the sustained increase in export earnings stemming from the restoration of the GSP+ facility by the European Union, favorable prices for key commodities in the international market and flexible exchange rate policy maintained by the Central Bank.  

According to the statistics published by the Export Development Board of Sri Lanka, tea and fisheries sectors recorded a strong Y-o-Y growth of 20% and 40% respectively. Tea benefited from higher prices and enhanced access to Middle Eastern markets while fisheries benefitted from both the lifting of the EU ban (June 2016) and GSP+ restoration (May 2017). Apparel exports recorded a growth as new orders from EU were secured due to the GSP+ benefit and favorable market conditions in the US market. 

Note:  

The Central Bank of Sri Lanka has only released the aggregate figure of exports for 2017 and in the External Sector Performance section of this Economic Update features export performance of November 2017 which is the latest available export statistics in detail.

During November 2017, exports continued to record a double- digit growth for the fifth consecutive month. The growth was largely supported by textile and garments exports due to increased demand from the EU and the USA and non-traditional markets such as Australia, Hong- Kong and UAE. However this growth was partly driven by the low base recorded in November 2016. 

 

  Further Insights - Global Economy    

Trade Growth to Sustain Momentum in Q1 of 2018 
February update of the World Trade Outlook Indicator (WTOI) of the World Trade Organisation (WTO), indicate that the trade recovery of 2017 should continue with solid trade volume growth in Q1 of 2018. WTOI’s current value of 102.3 is increased marginally from 102.2 recorded in November 2017, indicating steady merchandise trade volume growth. Strong result for air freight, container shipping and export orders in particular suggested that, while the trade recovery may moderate in due course, it will likely to continue in the coming months and remain above trend.  
 

China’s holdings of U.S. Government Debt Swelled  
China’s holdings of U.S. Government debt swelled to USD 1.18 trillion by end 2017, up USD 127 billion from a year earlier as per the US Treasury Department Data. This is an annual increase of 13%, the biggest since 2010. China remains the top foreign holder of U.S. Treasury debt, a position it’s held for most of the past decade. The second big foreign creditor of U.S. is Japan, with over USD 1.06 trillion.  
 

China’s Merchandise Trade Surplus Narrowed in January 2018 
China’s exports expanded 11.1% annually in January 2018 and marginally increased compared to 10.9% recorded in December 2017. Imports surged to a 36.9% expansion over the same month of 2017, which overshot 4.5% expansion in December. Import surge recorded in January 2018 recorded the strongest expansion since March 2017 and this surge largely reflect the distortion related to the increased consumption due to Chinese New Year Holidays, which occurs in mid-February 2018 compared to the endJanuary 2017. The trade surplus narrowed from USD 48.9billion in January 2017 to USD 20.3 billion in January 2018. 

 

  ANNEXURES    

The Ceylon Chamber of Commerce

Economic Intelligence Unit

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