RAM Ratings forecasts 7% growth in 2013

Thursday, 1 November 2012 01:09 - - {{hitsCtrl.values.hits}}

RAM Ratings is forecasting Sri Lanka’s economic growth to be 7% in 2013 whilst it has revised down this year’s figure to 6.5%.

“Despite Sri Lanka’s stellar growth in recent years, global headwinds and policy measures to curb demand remain key considerations through the rest of 2012 and next year. As such, we have revised our GDP growth forecast to 6.5% for this year, followed by 7.0% in 2013 as a clearer resolution to the global crisis emerges,” RAM Ratings (Lanka) Ltd., said in its Economic Outlook released yesterday.

It said domestic private consumption is anticipated to chart healthy growth due to the expansion of the general economy. Nonetheless, the Central Bank’s tightening of policies may trickle down to the real economy in 2013.

Driven by continued support from the Chinese government, investment is expected to increase further, although regressive policies may pose a downside risk. Public expenditure, meanwhile, should be reined in on account of fiscal consolidation, but a larger proposed defence and urban development budget may be of some concern.

“With no end in sight to the troubles plaguing its key trading partners, Sri Lanka’s export performance is not envisaged to improve anytime soon. By contrast, import growth will likely be sustained by robust domestic consumption and construction,” RAM said.

It also said agriculture may decline further due to the extreme drought, which has also hit hydro-powered electricity generation. Export-oriented manufacturing shows a downtrend due to persistently weak demand from traditional export markets. On the flip side, a pick-up in investment will boost construction, especially for civil infrastructure projects. The active financial and retail sectors should also lift the services sub-sector.

“The inflation rate is expected to ease as growth momentum slows and macro-prudential controls cool domestic credit growth, albeit still subject to global commodity prices. The Central Bank is likely to maintain its key policy rate in the near term due to heightened risks for growth. Short-term stabilisation of the rupee is expected on the back of enhanced global liquidity, with gradual appreciation a likely scenario,” RAM Ratings (Lanka) Ltd., added.