Poor consumer spending
Despite the lending rates now at multi-year lows and benign inflation, Sri Lankans don’t appear to have felt the need to rev up their consumption.
This phenomenon has in fact troubled economists in recent times but HSBC said that the raising indirect taxes had impacted consumer spending negatively.
“The government has done a good job in bringing down the deficit, but this has come at the expense of a decline in consumer spending.
Raising indirect taxes (eg, VAT) to improve revenues hit consumers’ pocket, and currency depreciation in late 2012 and the removal of electricity subsidies have not helped either,” the report noted.
According to research firm Nielsen, the sales volume of fast-moving consumer goods (FMCG) had contracted for seven quarters in a row. However, there are signs that volumes started to pick up in late 2013.
“We believe FMCG sales have bottomed and should expand in 2014. New salary increases and improvements in business and consumer sentiments should drive consumption growth, provided the currency remains supportive,” they noted.