Sri Lanka’s economic growth is expected to fare much better this year compared to the steep contraction last year, said Chief Economist of the Ceylon Chamber of Commerce (CCC), Shiran Fernando.
He was speaking at the Economic Outlook 2023 seminar of the CCC recently. The 8th edition of its flagship annual Outlook Report for 2023 also launched at the event.
“The slowdown witnessed in 2022 will likely continue into the first half of 2023 in particular with consumption easing further with the higher tax regime. However, the EIU expects consumption to bounce back in the second half with a lower interest rate environment coupled with stability in terms of prices for goods and services. Sectors such as agriculture and tourism will also do better in 2023 while exports and investment are two key levers for growth in 2023,” he said.
The Report revealed that while inflation is to trends downwards to between 10-20% towards the last quarter of 2023, the EIU expects to see firms adopt a shrinkflation approach where they may not necessarily increase prices of goods and services but the composition/size may be adjusted to stay in line with costs. The disinflationary environment will also see interest rates fall during the year.
The stability of the currency hinges on the outcome of the IMF program which can potentially unlock further financing from multilateral partners.
“However, any delay beyond the second quarter of 2023, to obtain IMF Board approval, could put the currency under pressure in particular if imports rise accompanied by a sharp slowdown in exports,” he said.
Global growth slowdown and how it could potentially disrupt economic recovery with a slowdown in exports, was also highlighted.
“However, the EIU believes an increase in remittances and tourism inflows could compensate for this drop,” Fernando said.
The Chief Economist stressed the need to prioritise reforms in this narrow window of opportunity and implement the much delayed structural reforms that would drive sustainable growth. He said that 2023 should be the year of focusing on low-hanging fruits in the reform agenda and setting the stage for larger and more complex reforms.
Compiled by the Economic Intelligence Unit (EIU) of the Ceylon Chamber, the report covers the outlook for key variables such as growth, inflation, interest rates and exchange rate which are vital for business planning. - SS