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StanChart cuts forecasts on Sri Lanka over revised data, slower growth

23 December 2015 02:59 am - 0     - {{hitsCtrl.values.hits}}

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Standard Chartered (StanChart) has made a significant downward shift on its growth estimates for Sri Lanka, based on the revisions to GDP calculation and tepid growth.
“We lower our GDP growth forecasts for Sri Lanka to 5.5 percent in 2015 from 6.3 percent and to 6.0 percent in 2016 from 6.8 percent, based on data revisions and a slower-than-expected economic recovery,” a report said.
The Department of Census and Statistics revised its GDP calculation methodology, shifting the base year from 2002 to 2010, and including a variety of economic activities which were not included in the past, in order to increase the accuracy of calculations.
Due to the revisions, the country’s economic growth for the first quarter was adjusted to 4.9 percent from 6 percent, while for the second quarter it was adjusted to 6 percent from 6.7 percent.
“We believe the new GDP series and frequent data revisions cast uncertainty over the country’s GDP forecasts,” StanChart said.
It added that the pace of economic growth has been disappointing as well, with the third quarter GDP growing 4.8 percent compared to their estimate of 5.7 percent, due to weaknesses in the services sector, the key contributor to the country’s economy.
However, it said that growth will be stronger next year due to policy certainty. “The new government (elected in August 2015) presented its economic policy in November 2015, and we expect a positive impact from its implementation to be felt in 2016,” StanChart said.
It said that the slashing of growth to 6 percent in 2016 was due to an expectation of slower investments, in addition to the revised methodology.
This is despite the new budget presenting many foreigner and investor-friendly proposals.
“Public and private investment is likely to slow as the government reins in the fiscal deficit, a key medium-term concern. A potentially negative spillover from slower economic recovery globally is the other key risk,” StanChart added.
The US Federal Reserve rate hike will also reduce investments to Sri Lanka as investors are presented with less risky US securities.
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