Consumer confidence in Sri Lanka has picked up in the 4th quarter of 2014 and January 2015, according the Consumer Confidence Index of The Nielson Company.
The index rose from 65 index points in October 2014 to 75 in November, and eventually to 84 in January, approaching the all-time high of 87 achieved in December 2011.
The index tracks consumers’ confidence in the job market, status of their personal finances and their readiness to spend.The hike could be attributed to the policies implemented by the October 2014 budget and could rise even further in the coming months due to further concessions in January’s interim budget.
The Nielson Company Managing Director Shaheen Cader told MirrorBusiness earlier this month that there would be a significant rise in consumption following the interim budget, thus setting pace for the months ahead.
A strong growth in fast moving consumer goods was seen in the 3rd and 4th quarter of 2014 as well, with 10 percent increases in volume year-on-year, while growth of prices reduced to 5 and 4 percent respectively. “FMCG growth is largely driven by personal care products but food and beverages are also now showing significant volume growth.” The Nielson Company report said.
Consumer spending on durable goods could also see a marked increase. Policy rates on borrowings have fallen to an all time low of 12 percent, sparking strong credit growth. The largest private sector financial institution; the Commercial Bank of Ceylon PLC, recorded 21 percent credit growth during its 4th quarter.
“Lower borrowing costs could see higher consumer spending on housing and consumer durables,” the report stated.
The fall in prices of construction material and fuel will also have a positive impact on construction and automobile purchases.
It was started in 2009 with quarterly measurement, but in 2011 was switched to monthly tracking.
The report said that a shift in consumer patterns was also visible.
“Consumers are shifting to more lifestyle-driven expenditure from basic expenditure, especially in food, transport and housing/ home products such as durables.”
However, Cader had held that since the budget gave relief to the lowest spectrum of society, they would increase consumption in basic goods. However, headline inflation could have a negative impact on the trends being seen now, as the Sri Lankan economy is heavily dependent on imports.
“(With) Price cuts in the 2015 budget, inflation should come down in the short term but may increase subsequently as the rupee faces devaluation pressure,” the report said.
However, Central Bank Governor Arjuna Mahendran recently told MirrorBusiness that inflation will remain benign.