From -1.8% in 2023, Sri Lanka to achieve 2.2% economic growth for 2024 – CT CLSA Securities
CT CLSA Securities forecast that Sri Lanka will have a -1.8% economic growth by 2023 end. They had previously predicted a higher (-2.4%) contraction of the economy for 2023 year-end.
CT CLSA Securities also increased economic growth for 2024-year end from +1.8% YoY previously to +2.2%.
“We have increased our forecast for 2024 as we are currently observing a gradual recovery in the nation’s economic situation.
The economic performance of Sri Lanka has recorded a marginal reduction in contraction in Gross Domestic Product (GDP) in 1Q2023 by declining -11.5% (vs. -12.4% contraction in 4Q2022). The economy contracted slightly higher than expected, driven by a high-interest rate environment which affected the contraction of economic activities in the country together with the high inflationary pressures affecting the local demand.
However, with the higher rate of contraction in the month-on-month inflation rates in April and May, CBSL relaxed its policy rates indicating relaxation to pave way for the private credit and consumption to recover to sustain the economic activities while targeting growth in the economy in 2H2023.
Although LKR 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 LKR was seen continuously depreciating following the relaxation of import restriction as a part of IMF BLA clause to allow import restriction to be eased on a phased-out manner.
These factors are expected to support exports as Sri Lanka’s exports will continue to be competitive in terms of pricing.
An increase in private consumption from falling interest rates, an expansion in disposable income from falling inflationary pressures, and availability of products through eased-off import restrictions will drive economic activities in 2H2023E, thus forecasting an expansion in the economy by 4Q2023E.