Sri Lanka’s economic performance exceeds expectations – ADB

The Asian Development Bank says that Sri Lanka’s economic performance in Q1 2024 exceeded Asian Development Outlook (ADO) April 2024 expectations.

The report says that the inflation forecasts for South Asia are nudged up to 7.1% in 2024 and maintained at 5.8% in 2025.

Although inflation forecasts of Bhutan, India, and Pakistan for FY2024 and FY2025 remain the same as in ADO April 2024, the inflation projections for Bangladesh (double digit) and Maldives (3%) are now expected to be higher.

In Nepal, average inflation moderated to 5.8%.

At 23.06%, Pakistan had by far the highest inflation rate among South Asian economies.

In contrast, the inflation forecast in Sri Lanka for 2024 is revised down under 2% (from 70% two years ago) as supply-side conditions improved alongside better external buffers and the availability of foreign currency.

However, the ADO says that the growth forecasts for Sri Lanka for 2024 and 2025 are retained as there remain uncertainties as the election cycle begins in the latter half of the year.

Developing Asia’s growth accelerated early this year, supported by a relatively stable global economy with the region’s economy remaining robust in the first quarter (Q1) of 2024, driven by strong export growth and solid domestic demand.

Downward revisions for GDP growth in Bangladesh and Maldives over the forecast period are offset in 2024 by upward revisions for Bhutan, Nepal, and Pakistan, leaving the region’s 2024 growth forecast unchanged at 6.3%. Dampened performance of the construction sector is the main reason for lower growth forecasts for Maldives in 2024 and 2025, with lower-than-expected growth in the fisheries sector this year also contributing.

Bhutan’s GDP growth forecast for 2024 is adjusted upward due to a greater-than-expected increase in the government budget for FY2024 (ended June 30 , 2024) and better tourism prospects. Nepal’s GDP projection for FY2024 (ending mid-July 2024) is also revised up due to higher-than-expected growth in agriculture and services.

The provisional government estimate of GDP growth in Pakistan for FY2024 (ending 30 June 2024) stood at 2.4%, reflecting robust agricultural output due to improved weather conditions and subsidized government credit, among other factors.

While Afghanistan’s economy is showing signs of recovery, the weak investment climate, tight fiscal space and waning international humanitarian and basic needs support underlines its fragility.

The Indian economy is on track to grow by 7.0% in FY2024 and 7.2% in FY2025, as projected in ADO April 2024. Services continued to expand robustly in Q4 of FY2023. Industry is also expected to grow robustly, driven by manufacturing and strong demand for construction led by housing.

The growth forecast for South Asia remains steady at 6.3% for 2024, with the 2025 projection down marginally to 6.5%.

Despite some changes in individual economies, growth forecasts for Southeast Asia remain at 4.6% in 2024 and 4.7% in 2025 and for the Pacific at 3.3% in 2024 and 4.0% in 2025.

East Asia’s 2024 growth projection is revised up to 4.6% on strong exports of semiconductors and other goods driven by the artificial intelligence boom, with the 2025 projection maintained at 4.2%.

The outlook for growth in the Caucasus and Central Asia is raised to 4.5% from 4.3% in 2024 and 5.1% from 5.0% in 2025. Interest rates in the United States and other advanced economies continue to shape the outlook, which is subject to several downside risks. Uncertainty on the United States election outcome, elevated geopolitical tensions and trade fragmentation, property market fragility in the People’s Republic of China, and weather-related events could hurt growth.

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