Available leading indicators and current projections suggest that Sri Lanka’s real economic growth will continue to remain subdued during the fourth quarter of 2018 as well, and economic growth in 2019 is also expected to be modest.
The economy is expected to gradually reach its potential in the medium term benefitting from the low inflation environment, competitive exchange rate and appropriate policies to support investment.
Despite an uptick in inflation in January 2019, inflation outlook remains favourable in the medium term
Headline inflation and core inflation as measured by the year-on-year change in both Colombo Consumer Price Index (CCPI, 2013=100) and National Consumer Price Index (NCPI, 2013=100) increased in January 2019 mainly due to the increase in non-food inflation driven by higher expenditure on certain items such as house rentals and education.
Recent upward adjustments to fuel prices as well as possible increases in administratively determined prices of certain commodities could exert some transitory price pressures in the coming months.
However, domestic supply side developments are expected to be favourable in the period ahead. Projections indicate that inflation is likely to remain in the desired 4-6 per cent range in 2019 and beyond.
Amidst a modest growth in exports, a slowdown in import expenditure was observed, particularly during the latter part of 2018, resulting from policy measures adopted by the government and the Central Bank to curtail motor vehicle and non-essential goods imports. These developments contained the trade deficit significantly in November and December 2018.
The noticeable growth of earnings from tourism continued to support the current account of the balance of payments (BOP), although workers’ remittances recorded a marginal decline in 2018. In the financial account, foreign investments to the government securities market recorded a net inflow thus far during 2019.
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