- Exports in May declined 12% YoY, continuing the secular decline seen over the past 18 months. Compared to the previous month, however, industrial and agricultural exports grew steadily but were still lower than the same period last year. While food beverages and rubber products saw YoY increases, tea and textiles exports saw sharp declines, dragging down overall exports.
- Imports in May marginally increased by 0.3% YoY, with consumer goods and intermediate goods decreasing by 6% and 4% respectively, but sharp increases in investment goods by 18%. The increase in investment goods was largely driven by increases in machinery and building materials, which is a positive sign for the recovery of the construction industry in particular. Vehicle imports continued to fall this month too, on account of higher taxes and tighter lending rules, falling 32%.
- Interest rates were hiked by 50 basis points in end July. Rapid growth in private sector credit and steadily rising inflation seem to have prompted the Monetary Policy Committee of the CBSL to raise rates earlier than most analysts expected. The depreciation of the LKR along with difficult global conditions for attracting funds to frontier markets would also be a factor in this rate hike.
- Provincial GDP data (2015) for Sri Lanka showed that the Western Province dominance of GDP continued, with a slight dip of 0.6% from the previous year. The Southern Province saw the sharpest slowdown, from 13.3% in 2014 to 5.7% in 2015, likely impacted by the scale back of a raft of infrastructure and other projects there under the previous regime. Encouragingly, the Northern Province GDP share increased by 0.2%, and GDP growth sped up to 12% in 2015.
- Probability of a rate hike this year by the US Fed strengthened as new data showed further improvements to employment and inflation edging up. Fed Chair Janet Yellen is due to make an influential speech at a global gathering of Central Bankers later this week, which is likely to provide stronger hints at the path of the Fed’s tightening cycle; whether the Fed sees enough economic momentum to prompt raising interest rates in September, or the coming months.
- Anticipating sharp declines in output, employment, and overall business activity in the UK as a result of Brexit, the Bank of England cut rates to a low 0.25%. Estimates from most major banks have forecast a sharp slowdown in the economy, and a strong likelihood of recession in the next 12-24 months.
- PMI from the Eurozone has held steady in July (and forecast for August as well), indicating that the fallout of Brexit on European economies is yet to materialize. The PMI would be an important indicator to watch moving forward, as it would give a sense of the impact of Brexit on the wider European economy as well as overall economic health of the region.