Economy holds steady at 5% in 2025 despite Cyclone Ditwah disruptions

• Outpaces multilateral forecasts

• Activity slowed in 4Q, with real GDP rising 4.8% YoY, compared to 5.6% in same period of 2024
• GDP in October-December quarter rose to Rs.3,414.1bn, from Rs.3,256.9bn a year earlier
• Full-year GDP at constant prices rose to Rs.13,128.5bn, from Rs.12,508.9bn in 2024

Sri Lanka’s economy maintained its momentum in 2025, recording a 5.0 percent expansion for the second consecutive year and exceeding forecasts set by major multilaterals. 

The full-year growth outpaced the projections by the World Bank, which had forecast 4.6 percent, the International Monetary Fund at 3.5 percent, the Asian Development Bank at 3.9 percent and Fitch Ratings at 4.4 percent, highlighting a stronger-than-expected recovery as the domestic conditions stabilised.

Although Sri Lanka’s economy recorded a robust growth of 5.0 percent for the full year, activity slowed in the final quarter, with real GDP rising 4.8 percent year-on-year (YoY), compared to 5.6 percent in the same period of 2024.

At constant 2015 prices, GDP in the October-December quarter rose to Rs.3,414.1 billion, from Rs.3,256.9 billion a year earlier, while nominal GDP grew 10.0 percent to Rs.8,700.3 billion. 

The slowdown in late-year activity was partly due to the impact of Cyclone Ditwah in November, which disrupted agricultural output, logistics and service-related activity, particularly in transport, trade and tourism segments. 

Agriculture grew by a modest 2.1 percent in the quarter, while services expanded by 3.1 percent. Industry remained resilient, recording 7.3 percent growth, reflecting continued strength in construction, manufacturing and mining, despite the temporary disruptions.

For the full year, Sri Lanka’s GDP at constant prices rose to Rs.13,128.5 billion, from Rs.12,508.9 billion in 2024, while nominal GDP increased 8.8 percent to Rs.32,750.8 billion. 

The economy remained services-led, which accounted for 54.6 percent of GDP at current prices, followed by industry at 25.4 percent and agriculture at 8.4 percent, with taxes net of subsidies contributing 11.6 percent.

Industry expanded by 7.8 percent for the year, moderating from 11.1 percent in 2024 but continuing to anchor growth. 

Construction and mining and quarrying recorded strong expansions of 9.2 percent and 16.9 percent, respectively, while manufacturing grew 6.2 percent on broad-based gains across the sub-sectors, including refined petroleum products, non-metallic mineral products and basic metals. 

Utilities also supported industrial growth, with electricity generation rising 9.2 percent and water supply increasing 5.7 percent.

Services grew by 3.3 percent, accelerating from 2.4 percent in 2024, driven by robust performances in insurance and pension funding, IT services, accommodation and food services and financial services. 

Other segments such as telecommunications, postal and courier services, professional services and real estate also contributed to expansion, reflecting improvements in domestic consumption and business activity, although public administration and defence contracted slightly. 

Agriculture recorded a 1.4 percent expansion for the year, improving from 0.6 percent in 2024, with growth concentrated in plant propagation, forestry, animal production and rice cultivation. However, adverse weather conditions weighed on several crops and fisheries, including rubber, vegetables, coffee, cocoa and freshwater aquaculture, highlighting the sector’s vulnerability to climatic events.

Policy measures and improving sentiment, such as the easing of vehicle import restrictions, played a supporting role in sustaining activity, particularly in wholesale and retail trade, financial services and insurance. 

Macroeconomic conditions remained broadly supportive, with a stabilising exchange rate, declining interest rates and a pickup in inflation from the third quarter contributing to a more conducive environment for economic activity.