Earnings from exports have declined, while expenditure on imports increased during December 2019, widening the trade deficit. During the year 2019, the trade deficit contracted significantly, driven by a sharp contraction in import expenditure.
The speed of recovery in the tourism industry accelerated in December 2019, although cumulative earnings from tourism declined during the year. Workers’ remittances increased notably (year-on-year) in December 2019, helping to moderate the cumulative decline in 2019. Meanwhile, there was a notable outflow of foreign investment from the Government Securities Market during December 2019, while the marginal net outflows were also observed from the CSE. The Sri Lankan rupee appreciated against the US Dollar during 2019 and remained stable thus far during 2020.
The deficit in trade account widened in December 2019 to US dollars 784 million, from US dollars 701 million in December 2018, led by a decline in exports and a growth in imports on a year-on-year basis. However, on a cumulative basis, the trade deficit contracted by US dollars 2,346 million to US dollars 7,997 million during 2019 from US dollars 10,343 million in 2018. The major contributory factors for this decline are depicted in Figure 1.
Meanwhile, the terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated by 2.9 per cent (year-on-year) in December 2019, as export prices declined at a faster pace than the decline in import prices. Cumulatively, the terms of trade deteriorated by 1.5 per cent during 2019, in comparison to 2018.
In comparison to December 2018, earnings from merchandise exports declined by 3.2 per cent to US dollars 1,000 million in December 2019, with the decline in agricultural exports as well as industrial exports.
Earnings from agricultural exports declined in December 2019, due to lower exports of most subcategories. On a year-on-year basis, earnings from tea exports declined due to the combined effect of lower export volumes and average export prices. Earnings from spices declined due to lower export prices of all sub sectors, while export volumes, except cloves, also declined. Earnings from seafood exports also declined with a lower demand from the US market. In contrast, earnings from exports of minor agricultural products, mainly arrecanuts and fruits, increased during the month.
Earnings from industrial exports declined in December 2019, in comparison to December 2018, mainly driven by lower textiles and garment exports due to dampened demand from the EU and the USA, despite an increase recorded in exports to non-traditional markets such as Canada, Australia and China. Earnings from machinery and mechanical appliances declined due to lower exports in most subcategories, except insulated wires, cables and conductors.
Earnings from rubber products also declined as a result of lower tyre exports, although export of surgical and other gloves increased. Conversely, export earnings from petroleum products increased mainly due to the increase in earnings from petroleum gases, despite a decline in earnings from bunker fuel. In addition, earnings from gem, diamonds and jewellery exports increased.
Earnings from mineral exports recorded a considerable growth in December 2019, year-on-year, led by ores, slag and ash exports.
The export volume index in December 2019, improved by 1.8 per cent (year-on-year), while the export unit value index declined by 4.9 per cent, indicating that the decline in exports was driven entirely by lower prices when compared to December 2018. Coutesy Central Bank
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