The local economy will have to be cautious about global headwinds and domestic factors that could further stymie growth this year, Governor of the Central Bank Dr. Indrajit Coomaraswamy said, referring to the International Monetary Fund (IMF) Managing Director’s warning of a ‘synchronised slowdown’ in the global economy this year.
Walking the media through the Bank’s monetary policy stance last week, the Governor said the global economy in the past two to three years has been under stress due to trade wars, Brexit and geo-political tensions that is stifling growth in major economies.
IMF’s new chief Kristalina Georgieva in her inaugural speech last week said the global economy is going through a “synchronized slow down,” warning that it would worsen if governments failed to resolve trade conflicts and support growth.
She said 90 percent of the world economy would face slower growth this year. According to Georgieva, the cumulative effect of trade conflicts could mean a $700 billion reduction in global gross domestic product (GDP) output by 2020, or around 0.8%.
US President Donald Trump announced an increase of tariff on remaining Chinese imports, or goods worth around $300 billion.
“On the domestic front we need to be cautious of fiscal slippages with the election cycle setting in. Fiscal discipline will be needed to ensure expenditure is kept on control,” the Governor warned.
The presidential election has been fixed for November 16 and thereafter, a General Election early next year, a time the government and all politicians go on a spending spree to boost their image.
Economic growth is anticipated to be below three percent this year, the lowest in decades due to unfavourable internal and external factors that prevailed throughout the year.
However, the narrowing of the trade deficit to US$ 2.1 billion in the first eight months this year is a silver line in a gloom and doom situation of the domestic economy. The trade deficit narrowed $ 2.1 billion up to August this year supported by an increase in exports and a decline in imports through the period.
Exports increased by 2.4 percent to US$ 8.0 billion and imports dropped by 14.6 percent to US4 12.9 billion (y-o-y).
The trade deficit contracted in August as the decline in imports continued while the dip in exports in the previous month had recovered according to Central Bank data.
Import expenditure recorded a decline of 16.6 per cent (year-on-year) and export earnings declined fractionally by 0.4 per cent (year-on-year) in August 2019, mainly due to the lower prices of major export categories.
The trade deficit fell to US dollars 540 million in August 2019 compared to the deficit of US $ 717 million recorded in July 2019.
Tourist arrivals recovered steadily by increasing 24.1 per cent in August 2019 over the preceding month, while also narrowing the gap on a year-on-year basis.
Workers’ remittances declined by 3.0 per cent (year-on-year) to US $ 518 million in August 2019.
On a cumulative basis, workers’ remittances amounted to US dollars 4,414 million during the first eight months of 2019, recording a decline of 7.6 per cent over the corresponding period in the previous year.
However, foreign investments in the CSE and government securities market recorded net outflows during the month.
Export earnings from rubber products declined due to lower earnings from tyres and surgical and other gloves exports while food, beverages and tobacco exports declined with lower exports of vegetable, fruit and nut preparations as well as manufactured tobacco.
Export earnings from machinery and mechanical appliances, petroleum products, transport equipment, base metals and articles and leather, travel goods and footwear also declined during this period. - LF