Sri Lankan Economy
- Exports continued its steady decline, although to a lesser extent, than previous months, as exports fell 5% Y-o-Y. Agricultural and Industrial exports enjoyed strong levels of growth M-o-M, however failed to reach the export figures of last year. Food & Beverages, Textiles & Garments saw positive Y-o-Y growth, while Tea saw no change compared to last year.
- Imports continued a gradual increase, rising by 2.6% Y-o-Y, with a sharp decrease in Consumer goods of 10% Y-o-Y offset by the increases of Intermediate & Investment goods Y-o-Y by 5% and 9% respectively. This was largely driven by increases in fuel, machinery and building materials – as several construction projects commenced activities.
- Vehicle imports and registrations saw sharp declines once more, as the weakening rupee, higher taxes, and higher interest rates squeezed overall demand. The subsequent reduction in exports and increase in imports expanded the trade deficit to USD 779 Mn; 13% higher than last year.
- Interest rates remain unchanged at the last monetary policy meeting. Inflation rates dropped to 4.0% for the month of August.
- GDP performance was weak, as growth rates for H1 2016 recorded at 3.9%, sharply below 6% for the same period last year. This was largely due to poor growth figures during the Q2 2016, which were at 2.6%.
- This led to ADB cutting down forecasted GDP growth rates for 2016 to 5.0% from 5.3% earlier, and for 2017 to 5.5% from 5.8%. It cited tighter monetary and fiscal policies and poor global growth as key factors to the downgrade.
- Oil prices rose sharply by 6% after OPEC announced an agreement to cut production by over 700,000 bpd. This is first time in eight years that the oil cartelstruck a deal to limit crude output since 2008. Oil is currently hovering above $47 a barrel.
- Amidst rising hostility towards globalization and trade integration around advanced economies, the WTO cut its global trade forecasts to 1.7% for 2016, nearly halving its earlier estimate it made in May. The new figure marked the first time in 15 years that international trade was expected to lag the growth of the world economy. Both the IMF & the WTO have cited the slump in trade as a wake-up call for governments all around the world – stating that economies may spiral into a deflation trap, specifically around developed economies.
- OECD also released its interim economic outlook this month, expecting global growth to remain flat at 3.0%, and improving slightly to 3.2% in 2017. This was a slight downgrade from its estimate in June, due to weaker conditions in advanced economies, notably the effects of Brexit, against the troubling backdrop of feeble growth rates – well below historical norms.
- The slowdown in growth in advanced may be offset by the positive outcomes and potential coming from Developing Asia. The ADB released its report on growth outlook in Asia, though realizing the potential risks faced by lackluster growth momentum, highlighted strong growth outlooks in the region, notably driven by India, Philippines, and Thailand.