EIU - JUNE 2018
Sri Lankan Economy
Q1-2018 GDP disappoints: Sri Lanka’s GDP grew by 3.2% in Q1-2018, the lowest quarterly growth recorded for last three years. GDP was mainly driven by the services sector and the highest growth was recorded from the agriculture sector. The construction sub-sector contracted by 4.9%. Overall GDP growth for 2017 which was revised upwards by 0.2% to 3.3%.
World Bank expects GDP growth to rebound: The World Bank projected a rebound of Sri Lanka’s GDP growth from 3.3% in 2017 to 4.8% in 2018 driven by growth in the non-tradeable sectors as growth recovers from a low base. Medium term growth is expected to be around 4.3% driven by private consumption and investment.
Mixed Performance in External Sector during Q1-2018: Exports were up by 7.7% and registered the highest Q1 exports growth for last three years owing to industrial exports, particularly textiles and garments. Imports rose by 13.1% during this period with the growth driven by intermediate goods imports, particularly gold and fuel. Deficit in the trade balance expanded by 19% meanwhile tourism earnings and workers’ remittances increased by 17% and 3.5% on a Y-o-Y basis.
Dollar strengthening sees decline in Asian and EM currencies: The Sri Lanka rupee has weakened 3.7% against the US dollar so far in 2017 (as at 28 June 2018). A strengthening US dollar and outflows from emerging markets has seen weakness in most emerging and Asian currencies. The Indian rupee has depreciated over 8% against the USD while the Indonesian rupiah declined to its lowest level since October 2015. The MSCI Emerging Markets Indices for stocks and currencies have fallen the most in the April-June quarter since July-September 2015 quarter.
IMF Disbursed the 5th Tranche: With the completion of the fourth review under the Extended Fund Facility (EFF), the IMF disbursed SDR 177.774 Mn (USD 252 Mn) to Sri Lanka. As per the IMF, performance in the first half of the EFF has remained broadly on track.
Q1-2018 Financial Flows: Net inflows to the CSE in Q1-2018 amounted to USD 18.8 Mn meanwhile the government securities market recorded a net outflow of USD 26.3 Mn by end March 2018.
3.1% Global Growth Projection for 2018: World Bank projected a global growth of 3.1% for 2018 and 3.0% for 2019. Expected growth for Advanced Economies were 2.2% for this year and 2.0% for 2019 whereas growth for Emerging Markets and Developing Economies (EMDEs) was 4.5% and 4.7% for 2018 and 2019 respectively.
Growth in South Asia to Pick-up; Growth in South Asia is forecasted to accelerate to 6.9% in 2018 from 6.6% in 2017 mainly reflecting fading disruptions to economic activity in India.
Oil prices see-saw in June: Oil prices fell to a 6-week low in the first half of June on expectations of an OPEC output hike. However, in the last two weeks it has risen after OPEC agreed to a smaller-than-expected production boost and concerns about U.S. sanction that could affect crude exports from Iran.
Fed Rates Up for the 7th time since late 2015: In June 2018, Federal Reserve raised the target range for the federal funds rates by 0.25% to between 1.75% and 2%. The Fed signaled that there could be two more hikes in 2018.
Weak UK Growth in Q1-2018: The growth of the UK recorded in Q1-2018 was just 0.1% and this was the weakest quarterly growth rate since 2012.