Economy grows 4.0% in 2Q, 3.9% in first half

„Strong construction sector propels 2Q economic growth „Revival in industrial activity offers hope for jobs and manufacturing „Agriculture records negative growth as extreme weather hits cultivations „Financial services, health and telcos push services se

Sri Lanka’s economy showed some level of resilience during the second quarter (2Q17) as it weathered substantial natural and self-inflicted woes during the period to grow at a modest yet a respectable pace.

During the April-june quarter, Sri Lanka’s US $ 81 billion economy is estimated to have grown by 4.0 percent, picking up from the 3.8 percent growth recorded for the same period in 2016, assisted by the resumption of construction activities and a number of new projects.

As a result, for the first half (1H17), the economy grew by 3.9 percent, slightly below the target range of between 4.0 to 4.5 percent that is expected for the full year by the Central Bank.

Sri Lankan economy faced headwinds in early 2015 mainly due to some self-inflicted damages making the macro-economic fundamentals feeble and had to seek the assistance of the International Monetary Fund (IMF) for a rescue package to put the economy back on track.

Also, the weather gods weren’t exactly kind to Sri Lanka as a severe drought scorched the key paddy cultivation areas while the backto-back floods wrecked havoc in Western, Southern and several other provinces forcing the industries shut down temporarily.

However the industrial activities of the country, which have a long been a neglected area, have shown some renaissance during the 2Q17 with the activities as a whole growing by 5.2 percent, the highest for the quarter.

The growth has largely been supported by the notable pick up in construction activities around the country after almost two years of stalemate due to political and economic uncertainty and suspension of some of the state-funded projects pending corruption inquiries and environmental assessment probes.

Since the conclusion of the war in 2009, Sri Lanka has been on a construction binge. The construction sector, which accounts for the largest share of 8.0 percent in the industries sector of the economy, grew by a strong 9.3 percent during the 2Q17 from a year ago.

The total industries in the country account for 25.9 percent to the gross domestic product (GDP), less than half of services sector, which accounts for a share of 56.6 percent.

Meanwhile, the agricultural sector, which accounts for 8.2 percent of the economy, recorded a negative growth of 2.9 percent predominantly due to the extreme weather conditions that destroyed the crops in key cultivating regions.

“However it is noteworthy that, ‘growing of rubber’ and ‘growing of tea’ which recorded negative quarterly growth rates continuously for the last three years, have reported significant positive growth rates of 10.2 percent and 6.9 percent respectively, in the second quarter of 2017”, said Dr. A.J Satharasinghe, Director General of Department of Census and Statistics.

There were notable declines in economic activity under the agriculture sector in areas of rice, cereals and oleaginous fruits which capture coconut production. These three areas recorded negative growths of 32.9 percent, 15.3 percent and 20.2 percent respectively during 2Q17 from a year earlier.

Interestingly, the contraction in these areas was visible in the monthly inflation figures, which showed substantial rise in food increases in recent times, where the government even had to resort to rice imports.

Meanwhile, the services sector continued to grow at a modest pace of 4.5 percent led by financial services, health services and telecommunication activities as these three areas are crucial support services in all other economic activities in the economy.

The importance of health services is seen increasingly coming to the fore with the growth of the health conscious middle income class in the economy.