Sri Lanka’s Q1 GDP growth seen slowing to 5.7% on weaker trade

Sri Lanka’s economy in the first quarter probably grew at a slower pace of 5.7 percent from a year earlier hit by weaker trade and factory output, a Reuters poll of analysts showed yesterday.

The economy expanded an annual 6.3 percent in the fourth quarter and 4.8 percent in the third quarter, which was a three-year low. First quarter GDP figures are due on Monday.

The poll of 10 analysts also forecast that economy would grow 6.2 percent in 2013, its slowest pace in four years and less than the central bank’s estimate of 7.5 percent. The International Monetary Fund had estimated growth of 6.3 percent in 2013, attributing it to sluggish external trade due to weak demand from Sri Lanka’s main export destinations such as Europe and the United States.

Samantha Amerasinghe, an economist at Colombo-based Standard Chartered Bank, said the slower economic growth was due to subdued factory output and weaker external trade. The Central Bank has eased key monetary policy rates by 75 basis points since December to one-year lows, but private sector credit growth has yet to pick up with high bank lending rates discouraging corporates from borrowing for investment and expansion.

The monetary authority this week said it could take more steps to reduce high lending rates if commercial banks do not fall in line with monetary policy rate cuts, after cutting the rate charged on credit card advances.

Strong loan growth from loss-making companies has enabled Sri Lanka’s commercial banks to maintain high interest rates even as the central bank has cut its main policy rates.

The Indian Ocean island nation’s economic expansion cooled to a three-year low of 6.4 percent last year from a record high of 8.2 percent in 2011 due to monetary tightening measures by the Central Bank to avoid a balance-of-payments crisis.