Growth gloom

Tightening brakes on growth, Government data released yesterday showed the country has slowed to a two-and-a-half-year low, slipping from 7.9% in the first quarter to 6.4 % in the second when compared with the same period last year.  

A Reuters report noted that economic growth eased to 6.4 per cent in the second quarter year-on-year, its lowest since the fourth quarter of 2009, as the Central Bank’s tight monetary and flexible rupee exchange rate policy weighed on external trade.
The Central Bank has raised the key policy rates twice since February to more than two-year highs, allowed a flexible exchange rate and limited this year’s credit growth to prevent twin deficits in trade and balance of payments.
“Spending was low in the second quarter and corporates were waiting for the currency to stabilise,” the report quoted Danushka Samarasinghe, Head of Research at Colombo-based TKS Securities. “…going forward, we expect a rebound as the currency has now stabilised, though the agricultural sector may have taken a hit due to drought. The global slowdown also will have an impact. Overall, we will be able to achieve 6.6 per cent growth in 2012.”
The rupee has fallen 16.5 per cent since 21 November after the Government devalued the currency by three per cent before allowing flexibility on 8 February. The currency fell four per cent in the second quarter alone.
Growth in imports contracted one per cent in the second quarter year-on-year from 10.3 per cent growth in the first quarter, and 17.6 per cent growth in the same quarter a year ago, according to the data released by the Census and Statistics Department.  Growth in the banking, insurance and real estate sub sector slowed to 6.5 per cent from 7.2 per cent in the first quarter and analysts blamed high interest rates.

The industrial sector grew 9.5 per cent on-year in the April-June quarter, compared with a pace of 10.8 per cent in Jan-March. Service sector growth moderated to 4.5 per cent from 5.8 per cent in the previous three-month period.
The strength of the industrial sector prompted Industry and Commerce Minister Rishad Bathiudeen to comment that the numbers indicate it is the “growth driver” of the economy.
“This underscores the importance of industries in Sri Lanka’s GDP. The industry sector growth which fell below agriculture sector’s leading growth in the 2012 first quarter in comparison to 2011 Q1, has now recovered becoming the leading growth driver in second quarter registering 19.6% positive rise followed by services (15.1%) and agriculture (6.3%),” Bathiudeen was quoted as saying in a media statement released by his Ministry.
Earlier Treasury Secretary Dr. P.B. Jayasundara had opined that Sri Lanka’s projected 7.2% growth would decrease to 6.7% due to losses from the ongoing severe drought.