6.3% projected by 2011:

‘Steady growth in Lankan economy’

The Sri Lankan economy is forecast to expand to 5.6% in 2010 and pickup more strongly to 6.3% in 2011, said Chief economist Ram Rating Dr. Yeah Kim Leng making a presentation themed Economic Outlook Sri Lanka.

Dr. Leng said that high sustained growth is possible with appropriate policies and strategies. The anticipated pick up in exports is expected to lift the export oriented industries in agriculture, mining and manufacturing. The resumption of tea exports is anticipated to increase agricultural production contributing to the projected 5.6% growth in 2010 and 4.1% in 2011. Meanwhile, the recovery in textile and garment exports is forecast to drive the expansion of the manufacturing sector propelling industry value added growth to 5.5% in 2010 and 6.4% in 2011.

In the services sector the anticipated increase in inbound tourist and business traffic together with stronger domestic demand and post war reconstruction efforts are expected to sustain the projected rise in construction, tourism telecommunication and banking activities driving the expansion in the services sector to 5.2% in 2010 and 6.7% in 2011.

Over the medium term (from 2010-2015) the recovery is expected to expand 5.5% per annum and this is slightly above the current underlying potential output, said Dr Leng. In the following five year period (2016-2020) the economy is projected to grow faster at 6.1% annually as the country’s productive capacity is increased by an anticipated higher level of capital investment and productivity growth. Though the economy is poised to pick up from next year the forecast for 2009 has been revised downwards to 3.2% about half the projection made prior to the eruption of the global financial crisis in September 2008, said Dr Leng. The services sector led by domestic oriented banking and insurance, transport and communications and government services is leading the turnaround while export based agricultural and manufacturing industries have experienced sharp contractions due to global slump in demand in the first half of this year.

“Unlike the other Asian countries with large export sectors , Sri Lankan banks have not been directly affected by the global financial crisis triggered by the American sub prime mortgage melt down, However, the collapse in external demand has resulted in exports falling more than 20% from pre crisis levels.

“The agricultural sector led by higher output of tea is recovering more strongly due to a low base effect. The services sector is contributing more to the overall growth because of its larger share and strengthening domestic demand which has helped to cushion the economy from the export slump.

The major impact from the global recession on the country’s economy has been a sharp slowdown in industrial output.

Export based industries including textile and apparels contracted 3.7% year on year during January to July.”

Dr. Leng said that export oriented industries will lead the rebound, but the growth is not expected to be robust given the fragile global economic recovery. He said the countries short and medium term prospects have improved significantly with the end of the armed conflict and at present the key risks are external and include slower than expected global recovery and a risk of a relapse, overshooting of world oil and commodity prices and the slower than expected reduction in political risk premium and reallocation of government expenditure to development. -SG