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Monthly Economic Update - August 2020

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3 KEY INSIGHTS

  • GDP contracts by 1.6% during Jan-March 2020 

  • 9% fall in Trade Deficit during the first half of 2020 driven by 20% fall in imports 

  • US Dollar Index falls to its lowest level in more than 2 years 

 

Sri Lankan Economy

Q1-2020 Records 1.6% Contraction: Following the partial lockdown of the country since mid-March 2020, and the global trends of economic downturn, Sri Lanka’s economy contracted by 1.6% during Q1-2020, with the exception of the services sector which continued to expand by 3.1%.

9% Decline in Trade Deficit during 1H-2020: During 1H-2020, trade deficit narrowed by 9% as a result of a 20% drop in imports despite a 26% fall in export during 1H-2020 compared to 1H-2019. Exports have recorded a steep recovery since May, and in June agricultural exports recorded a growth for the first time since May 2019.

Policy Rates Remain Unchanged: The CBSL decided to maintain its SDFR and SLFR at their current levels of 4.5% and 5.5% respectively.

PMI Continued to Expand in July 2020: PMI for both Manufacturing and Services activities continued to expand in July 2020, on a M-o-M basis benefitting from the normalising of economic activities.

Fiscal Deficit expands in Jan-May 2020: Tax revenue fell by 28% in the first five months of 2020 compared to 2019 resulting in a 40% expansion in the fiscal deficit. 

 

Global Economy

Significant Drop in Global Services Trade in Q1-2020: Owing to the COVID-19 pandemic, global services trade dropped by 7.6% in Q1-2020 compared to the same period of last year. As expected by UNCTAD, the hardest hit service sector was travel, that slumped by 24.4% on a Y-o-Y basis.     

WTO Good Barometer Confirms Steep Drop in Global Trade but Hints at Nascent Recovery: World merchandise trade registered a historic fall in the Q2-2020 according to the latest reading of the WTO’s Goods Trade Barometer.

Record Drop in UK Growth:  The UK was one of the worse performing European economies during the COVID-19 lockdowns as the country recorded a 20.4% contraction during April-June 2020 quarter, the biggest drop since records  began in 1955.

US Dollar Index falls to more than a 2-year Low: The US dollar index fell to its lowest level in more than 2-years during August due to concerns on the economic recovery of the U.S., surging fiscal deficit and the prospect of U.S interest rates remaining lower for longer than expected.

 

 

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

Saumya Amarasiriwardane

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