Sri Lankan Economy
- Growth: Full year GDP data for 2015 shows the economy grew at just 4.8% last year, well below projections by CBSL and the Budget Speech (6%), IMF (5-6%), and ADB (6.3%). A sharp slowdown in Q4 (2.5%) was the key contributor to this overall 2015 rate.
- Interest Rates: CBSL did not change policy rates at its March Monetary Policy Committee meeting, despite expectations of most rates analysts.
- Exports: Full year data for 2015 showed exports had declined by 5.6% YoY, with the monthly fall in December (18.7%) recording the sharpest, next to August 19.5%. Tea and Rubber exports were the largest contributors to the fall, while industrial exports fell by 3.5%.
- Imports: Full year data for 2015 showed imports had declined by 2.5% YoY driven largely by intermediate goods (mainly motor vehicles and telecom devices). Meanwhile, consumer goods imports rose by 22% and investment goods increased by 10%.
- External Balance: Decline in exports and a much smaller decline in imports fuelled a widening of the trade deficit by 1.7%. Remittances declined as well, and provided less import cover than before. Foreign receipts from tourism rose by 22% and helped cover 16% of the country’s import bill in 2015. Estimates for February suggest tourism earnings rose by 19.4%.
- Credit growth: Credit to private sector continued to grow strongly at 25.7% in January up slightly from 25.1% in December, but slower than previous months in 2015. CBSL hiking of rates in February is expected to slow credit growth further.
- Inflation: Core inflation continued its steady uptick seen in recent months, rising to 5.7% in February, from 4.6% a month earlie\
- US: US Fed Reserve Chair indicated a slower than expected rate hiking cycle by the FOMC citing vulnerabilities in the global financial system, although US domestic economy is recovering strongly (US 2015 growth was revised upward to 2.4% and job growth in February continued strongly).
- Europe: Growth and inflation forecasts for the Eurozone were cut further from 1.7% to 1.4%. ECB cut deposit facility rates further into negative territory to -0.4%, in yet another effort of monetary stimulus. Meanwhile, on Britain in the EU, some estimates suggest a loss of GBP 100 bn and 950,000 jobs in the event of a ‘Brexit’.
- Oil: Crude oil prices picked up briefly during February and March owing to some limited agreement among Arab oil exporters as well as Russia on freezing supply at January levels. However, as Iran with unwilling to participate and US inventories still high, prices are unlikely to remain at the current US$35+ levels. By this week, oil prices fell 3% as demand failed to keep up with swelling global supply.