Sri Lanka to rebound with 1.7% GDP growth in 2024 -CT CLSA Securities
Sri Lanka’s economy is expected to rebound from the contraction in 2023, with projections of +1.7% GDP growth for 2024 says CT CLSA Securities in their outlook for Outlook 2024.
“This improved economic environment should translate to higher corporate revenue and profitability,” the report titled ‘Navigating Fiscal Headwinds: A Resilient Path Forward in the Stabilizing Economy; said.
“With the Central Bank’s growth prospects fueling economy with precautious policy rate cuts aiding for expansion in the economy, we have revised up our GDP forecast to a contraction of -3.1% YoY (vs. -3.5% previously forecasted) in 2023E and a growth of +1.7% YoY (vs. +1.5% previously forecasted) in 2024E.”
The report predicts that the tourism sector, a vital contributor to Sri Lanka’s economy, is anticipated to see a significant revival in 2024.
“Increased tourist arrivals will benefit travel-related companies, hotels, and leisure businesses. We also expect worker remittances to improve significantly YoY by +12% to US$ 6.7 billion in 2024 end.”
Inflation levels at low single digits will support consumer disposable income to stabilize in the near term, although the VAT amendments will cause pressure to the inflation levels.
“Growth in industrial activities and services activities reported by PMI was commendable in recent months primarily driven by seasonal demand which indicates further growth in GDP in 4Q2023E. An increase in private consumption from falling interest rates, VAT hike will keep disposable income levels in check, and recovery in the manufacturing and services activities fueled by a recovery in industries and tourism will aid the growth in economic activities in 2024 end.
The significantly lower interest rate environment compared to 2022 and 1H-2023 should support private sector credit growth in 2024E. Export earnings expected to reach US$12.7bn (+7% YoY) in 2024 end and US$13.6bn (+8% YoY) in 2025 end.
For 2024, an expansion in export earnings is anticipated, due to a lower base effect in the previous year. Additionally, the economic recovery in 2024 is expected to support the enhancement of domestic manufacturing and trade activities, whilst contributing to the growth in exports.
“With the recent increase in the US consumer confidence index and the stored stocks of apparels depleting it could positively impact positively on the apparel sector exports for 2024.
Further, the agricultural sector-related exports are expected to recover for 2024 and 2025.” While uncertainties remain, the CSE is expected to see a positive earnings trajectory in 2024E.
Investors should focus on companies well-positioned to benefit from the economic recovery, sectoral growth trends, and government initiatives. “Selective stock picking and diversification will be key for success in the current market environment.”
Property taxes are expected to be introduced in 2025E which may have an impact on companies with large free-hold land banks.
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