The confidence of Sri Lankan consumer is at an all-time high amid the expectations on the state of their personal finances and the likelihood of having more money to spend continue to improve, according to a leading market research company in the country.
In its latest edition, the Nielsen Consumer Confidence Index is up by three points from the prior month, to touch an all-time of 87 - as it did back in December 2011.
“Consumers now seem to have more money in their hands and therefore their willingness to purchase not only fast-moving consumer goods (FMCG) but also durables and lifestyle products have shown a significant increase,” The Nielson Company Managing Director Shaheen Cader told Mirror Business in a brief phone interview.
"‘‘Consumers now seem to have more money in their hands and therefore their willingness to purchase not only FMCG but also durables and lifestyle products have shown a significant increase"
He added that there has also been a strong growth in the FMCG sector during the third and fourth quarters of last year. The Asian Development Bank (ADB) and Economist Intelligence Unit recently said that consumption would be the main driver of future growth in Sri Lanka.
The ADB noted that price reductions of food and fuel would encourage private consumption.
Just after winning the election, the new government led by President Maithripala Sirisena and Ranil Wickramasinghe reduced the fuel prices significantly. The interim budget that followed announced a host of tax reductions on a number of essential food items.
Cader said the trend was good for businesses in the short run as consumers have a positive mindset about the matter.
However, Cader also spoke about the other side of the story.
“During the past years, companies obtained a lot of their revenues from the increase of prices as opposed to selling their products.”
He noted that while consumers’ purchasing behaviour shows optimism, the price increment component factor for the businesses would remain low as inflation is low. Sri Lanka’s inflation hit a record low of 0.1 percent in March, easing from 0.6 percent in the previous month. According to the Central Bank, the main contributor for this decline was the moderation of food prices.
However, the business confidence in the country has dropped considerably as the new government delivered a big blow to the businesses with its one-off taxes announced in the interim budget.
There has also been a marked reduction in optimism about the investment climate in the country.