Sri Lanka’s economic growth slowed to a two-year low 2.9% after averaging 3.5% yoy for the past four quarters according to report by Economic Analyst of HSBC Aayushi Chaudhary.
Statistically, part of the slowdown can be explained by a contraction in Net Indirect Tax (NIT) collections, which pulled down GDP growth by 40bps, the report adds.
The rest of the weakness in growth numbers can be explained by slower growth in services and continued weakness in the industrial sector.
In fact, services alone explain 50ppt of the fall in growth from the previous quarter. However, it has had a healthy run so far, growing for six straight months on a sequential basis. “We would therefore not read too much into the latest print, awaiting further data to see if it’s just a blip,” he said. Gross value added (GVA) measure of growth came in at 3.3% yoy, stronger than 3% in the same quarter last year but much lower than 4% last quarter
Industry, on the other hand, has been weak for some time now, averaging under 2% yoy so far in 2018. Though manufacturing and mining had an unfavorable base this quarter, on a sequential basis, too growth failed to impress.
Agriculture continued to grow smartly, led by rice, coconut, cereals, vegetables and rubber cultivation.
In the October policy meeting, the central bank had increased policy rates by 50-75bps to neutralize the impact of a 150bps cut in Statutory Reserve Ratio. Given low single-digit inflation, a moderation in credit growth and below trend GDP growth, we expect the central bank to keep policy rates unchanged over the foreseeable future.
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