Economy grows by 5.3% in 1Q powered by industrial sector

• Accounting for 26.2% of economy industrial activities grew by 11.8%; dominant services sector grows by 2.6% and agriculture by 1.1%
• Department of Census and Statistics cites low inflation and interest rate, increased liquidity in foreign currency market, lifting import restrictions among reasons for favourable impact to almost all manufacturing activities in 1Q

Sri Lanka’s economy grew by 5.3% year in year in the first quarter sustaining the upward momentum experienced since September last year.

The positive development was powered by the Industrial sector accounting for 26.2% growing by a high 11.8% from a low base whilst the services sector with a share of 58.9% expanded by 2.6% and the agricultural economy accounting for 7.7% improved by 1.1% as against the first quarter of last year. In addition, taxes less subsidies on products accounting for 7.2% of GDP grew by 10% in the first quarter of 2024, the Department of Census and Statistics (DCS) announced yesterday.

The industrial sector in 4Q of last year grew by 7.9% though finishing 2023 with 9.2% contraction. Agriculture and services sectors grew by 0.6% and 2.8% respectively.

Overall, the economy in 2023 contracted by 2.3%, lower than 7.8% in 2022. Agricultural activities in 2023 expanded by 2.6% while services activities contracted by 0.2% respectively.

“The Sri Lanka economy experienced a more favourable economic condition in the first quarter 2024, when compared to the first quarter in the year 2023,” DCS said.

The high inflation had prevailed in the first quarter of 2023, gradually reduced to a lower level by the first quarter of 2024 and this low inflation incentivised the economy by providing inputs at much lower price. 

This effect was more notable in the construction industry which had been severely affected in the first quarter 2023 by high input prices. In parallel to decrease in inflation, interest rate also showed decreasing behaviour towards the end of first quarter 2024. Moreover, with the help of increased liquidity in foreign currency market, lifting import restrictions further, had a more favourable impact to almost all the manufacturing activities in the first quarter 2024. In addition, as a result of the increase in tourist arrivals, many related activities to the tourism industry have shown expansions during this quarter, DCS said.

Following is a brief commentary on the sectoral performance.

Agricultural activities

In the first quarter of 2024, the agriculture activities recorded an expansion of 1.1% when compared to the 1.6% of growth recorded in the same quarter in the year 2023.

Aforementioned 1.1% expansion in the agricultural activities were largely driven by the growth of ‘Growing of cereals’ (22.4%), ‘Fresh water fishing and freshwater aquaculture’ (18.1%), ‘Animal production’ (6.1%), ‘Agriculture supporting activities’ (4.2%), ‘Growing of fruits’ (3.4%), ‘Growing of rice’ (2.8%), ‘Growing of spices’ (1.6%) and ‘Marine fishing and marine aquaculture’ (1.1%).

Meanwhile, some agricultural activities, namely, ‘Plant propagation’ (26.3%), ‘Growing of rubber’ (7.4%), ‘Growing of other perennial crops’ ( 6.3%), ‘Growing of vegetables’ (5.1%), ‘Growing of tea (4.1%), ‘Forestry and logging’ (2.8%) and ‘Growing of oleaginous fruits’ (0.4%) reported contractions in the first quarter of 2024.

Industrial activities

The industrial activities as a whole grew by 11.8% in the first quarter of 2024 compared to the observed 24.3% decline in the first quarter of the previous year.

Among ‘Industrial activities’, coinciding with the decline in input prices, the ‘Construction industry’ grew by 14.2 %, parallel to this, the ‘Mining and quarrying’ industry expanded by 18.3% during this quarter.

Similarly, The overall manufacturing industry grew by 10.6% during the first quarter 2024 with the help of the increases in almost all the manufacturing sub activities, except the ‘Manufacture of paper and paper products’ which recorded a 2.9% decline in this quarter. All other sub activities in the manufacturing sector, namely,

‘Manufacture of basic metal and fabricated metal products’ (43.3%), ‘Manufacture of coke and refined petroleum products’(31.6%), ‘Manufacture of chemical products and basic pharmaceutical products’ (19.9 %), ‘Other manufacturing and repair and installation of machinery and equipment’ (19.2%), Manufacture of food, beverages and tobacco products’ (11.9%), ‘Manufacture of wood and wood products’ (10.0%), ‘Manufacture of rubber and plastic products’ (9.7%), ‘Manufacture of machinery and equipment’ (8.3%) , ‘Manufacture of textiles, wearing apparel, leather and other related products’ (6.6%), ‘Manufacture of other non-metallic mineral products’ (5.3%) and ‘Manufacture of furniture’ (1.3 %) reported expansions in the first quarter of 2024.

Among other industrial activities; ‘Electricity, gas, steam and air conditioning supply’ and ‘Water collection, treatment and supply’ grew by 11.7% and 12.9% respectively in the first quarter of 2024.

Services activities

Most of the services activities recorded expansion in the first quarter of the year 2024 and reported 2.6% of overall growth in the services sector compared to the reported 4.6% decline in the previous year’s first quarter.

Among the services activities, ‘Accommodation, food and beverage serving activities’ (40.4%), ‘Insurance, reinsurance and pension funding’ (17.8), ‘Postal and courier services’ (5.1%), ‘Transportation of goods and passengers including warehousing’ (3.5%), ‘Real estate activities and ownership of dwelling’ (3.1%), ‘Programming and broadcasting activities’ (2.5%), ‘Professional services’ (2.3%), ‘Education’ (2.1 %), ‘Telecommunication’ (1.2%), ‘Wholesale and retail trade’ (1.1%), ‘Other personal services’ (1.1%) and ‘Financial service activities’(0.8%) reported positive growth rates in the first quarter 2024.

On the contrary, only three services activities declined in this quarter, namely ‘IT programming consultancy and related activities’ (5.2%), ‘Public administration and defence’ (4.2%) and ‘Human health services’ (0.7%).

DCS also said the GDP for the first quarter of 2024 at constant price (2015) has increased up to Rs. 3,329,583 million from Rs. 3,161,963 million recorded in the first quarter of 2023.

In addition, the GDP for Sri Lanka for the first quarter of 2024 at current price has increased up to Rs. 7,959,032 million from Rs. 7,339,004 million which recorded in the same quarter in 2023 registering 8.4% of positive change in the current price GDP.