Sunday Dec 22, 2024
Sunday Dec 22, 2024
Tuesday, 10 October 2023 00:59 - - {{hitsCtrl.values.hits}}
CT CLSA Securities forecast the economy to contract by 1.8% in this year following the release of 2Q and first-half GDP data recently.
The broking firm expects the economy to grow at 2.2% next year.
Sri Lanka recorded a slowdown in contraction in Gross Domestic Product (GDP) in 2Q2023 declining by 3.1% (vs. 11.5% contraction in 1Q2023).
“This was in-line with our expectation as the economy gears up for a growth phase after the contractions recorded in the last few quarters driven by the high interest rates, high inflation, and contraction of disposable income from the rise in income taxes which highly discouraged the local demand conditions,” CT CLSA Securities said.
It said the Industrial and Services sectors in 2Q recorded negative growth rates of 11.5% YoY and 0.8% YoY respectively, while Agricultural activities staged growth of 3.6% YoY in 2Q2023.
It said GDP for 1H2023 contracted 12.8% YoY primarily due to the contraction recorded in the Industries and Services sectors, while the Agriculture sector recorded an expansion due to recovery in agriculture activities as constraints surrounding lack of fertiliser availability dissipate.
CT CLSA said with the higher rate of contraction in inflation in the months of July and August, CBSL relaxed its policy rates paving the way for private credit to grow and consumption to recover gradually, while targeting growth in the economy in 2H2023.
It also said although the rupee saw a gradual appreciation since March 2023 following the positive sentiment on the reduction in BOP balances from import restriction, inking of IMF BLA, and increase in FX reserves in the country, the rupee was seen continuously depreciating following the relaxation of import restriction on a phased-out manner.
An increase in private consumption from falling interest rates, a gradual expansion in disposable income from falling inflationary pressures, and a recovery in the manufacturing and services activities fuelled by a recovery in industries and tourism will aid the growth in economic activities in 2H2023E, thus forecasting an expansion in the economy by 4Q2023E.
“Given these circumstances being indicative of a gradual recovery in the nation‘s economic situation, we have maintained our economic growth forecast to -1.8% YoY for 2023E and +2.2% YoY for 2024E,” CT CLSA Securities said.
