Economy losing its steam

• At 6.3% country suffers the lowest third quarter growth in recent times; Officials forecast full year growth to hit four year low of near 6%
  
• Census and Statistics Department describes quarterly growth as “encouraging”; agriculture rebounds with double digit growth while industry and services lag
  

The economy appears to have lost steam with officials yesterday confirming that growth in the third quarter though at 6.3% was the lowest in recent years while full year forecast of near 6% would be lowest in four years.

The Department of Census and Statistics said that the economic performance “is encouraging” for the third quarter of 2008 with 6.3% compared to a growth of 7.0 percent for the same quarter of the last year.

“It was achieved amidst a number of challenges,” the Department added.

The major challenges cited were high inflation, unsettled security situation in the north region and the financial crisis which is significant from the world economy at the end of September.

It said that the fuel price has decreased by significant level due to many factors mainly with change in political perception in the western world and innovative shift to bio sources for fuel in this period. This reduced petroleum products contributed favourably to have encouraging economic growth by allowing more comfortable financial management of the economy.

With lower than originally anticipated growth in third quarter, there is likelihood of Sri Lanka finishing year 2008 with a below 6% growth.

Sri Lanka has been maintaining above 6 percent growth since 2004 and expected a minimum of 6.5% expansion, revised in September from the central bank’s original estimate of 7%. The previous lowest third quarter growth of 4.9% was in 2004 over the corresponding period of 2003.

“It will be around 6 percent,” said Suranjana Vidyaratne, director-general of the Department of Census and Statistics said.

“We expect the fourth quarter growth to be hit by global recession and to bring down full-year growth,” said Nalini Kumarasinghe, director of national accounts.

In the third quarter the services sector, which accounted for 59 percent of GDP, grew 5.5 percent in the third quarter of 2008, slowing down from 6.7 percent a year ago, while the industrial sector grew 5.6 percent, down from last year’s 7.5 percent.

However, the agriculture sector, which accounted for 12.8 percent of the GDP grew 12.4 percent, a sharp rise from last year’s 3.8 percent.

The Department attributed the rainfall during the third quarter of 2008 was favourable to record a high growth rate in Agriculture sector.

Among other contributory factors for the 6.3% growth in 3Q included according to the Department, the continuation of uninterrupted power generation and distribution; Higher prices for the exports of agricultural crops such as tea, rubber and; Minor exports crops in July and August; Lower fuel price in the world market; Continuation of peaceful environment in Eastern province and The favourable government economic policies.

Private sector analysts expect the global recession to hit 2009 growth.

“The growth could slow down to 5.8 percent in 2009,” Dhanushka Samarasinghe, head of research at Asia Securities was quoted as saying by Reuters.

Growth in main foreign exchange earning sources like garments, tea, and tourism are already slowing down, while job cuts in the face of global recession are expected to eat into worker remittances, analysts have said.

With regard to cost of living, the Department said the inflation rate for the total economy was 18.5 percent for the third quarter of 2008 which is based on GDP Implicit Price Deflator and this was 13.8 percent for the third Quarter of 2007.