Economy grows by 4.7% in 2Q, powered by industrial sector

Tuesday, 17 September 2024 FT

• Accounting for 25.5% of economy, industrial activities grew by 10.9%; dominant services sector
• grows by 2.5% and agriculture by 1.7%
• DCS cites low inflation and interest rates, lifting import restrictions as reasons for favourable
• impact on almost all manufacturing activities in 2Q

Sri Lanka’s economy grew by 4.7% year-on-year (YoY) in the second quarter of 2024, continuing the upward momentum seen since September 2023.

However quarter-on-quarter 2Q performance was lower than 5.3% growth achieved in 1Q.

The Department of Census and Statistics (DCS)  said 2Q positive growth was driven by the industry sector accounting for 25.5% of the GDP, growing by a high 10.9% from a low base, whilst the service sector with a share of 55.4% of the GDP expanded by 2.5% and the agriculture accounting for 10% of GDP expanded by 1.7% as against the second quarter of last year.

In addition, taxes less subsidies on products accounting for 9.1% of the GDP grew by 2.8% in the second quarter of 2024, announced.

“Sri Lanka experienced lower inflation, declining interest rates and eased import restrictions in the second quarter of 2024,” the DCS said, adding that these factors helped businesses access working capital and raw materials more easily, contributing to economic growth.

It also added that despite heavy rainfall affecting crops like paddy, tea and rubber in 2024, the rain boosted hydroelectric power generation, adding value to the electricity industry.

The DCS also highlighted that rising tourist arrivals in the second quarter helped sustain growth for the fourth consecutive quarter, starting from the third quarter of 2023.

Following is a brief commentary on the sectoral performance;

Agricultural activities

In the second quarter of year 2024, the agriculture activities have recorded an expansion of 1.7% when compared to the 4.2% of growth recorded in the same quarter in the year 2023.

The reported 1.7% growth in the agricultural activities were supported by the expansions in ‘Growing of cereals’ (22.7%), ‘Animal production’ (8.6%), ‘Marine fishing and marine aquaculture’ (7.7%), ‘Growing of fruits’ (3.9 %), ‘Growing of vegetables’ (3.8 %), ‘Fresh water fishing and fresh water aquaculture’ (3.6%), ‘Growing of spices’ (3.0 %), ‘Growing of oleaginous fruits’ (1.4%) and ‘Forestry and logging’ (0.7%).

However, some agricultural activities, namely, ‘Plant propagation’ (23.7%), ‘Growing of rubber’ (18.7%), ‘Growing of tea (8.8%), ‘Growing of other perennial crops’ (4.1%), ‘Growing of coffee, cocoa and other beverages crops (4.0%),‘Agriculture supporting activities’ (3.7%), ‘Growing of sugarcane’ (2.4%) and ‘Growing of rice’ (1.2%) reported contractions in the second quarter of 2024.

Industrial activities

All the Industrial activities together reported a 10.9% growth in the second quarter of 2024compared to the reported 11.7% decline in the second quarter of the previous year.

The ‘Construction industry’ and ‘Mining and quarrying’ industries returned with positive growths of 15.5% and 21.5% respectively in this quarter. Besides, the overall manufacturing  industry grew by 7.0% during the second quarter 2024 with the expansions of most of the manufacturing sub activities, namely, ‘Manufacture of basic metal and fabricated metal products’(31.6%), ‘Manufacture of chemical products and basic pharmaceutical products’ (24.0
%), ‘Manufacture of wood and wood products’ (21.1%), ‘Manufacture of furniture’ (8.0%), ‘Manufacture of rubber and plastic products’ (7.0%), ‘Manufacture of paper and paper products’(6.8 %), ‘Manufacture of textiles, wearing apparel, leather and other related products’ (6.6%), ‘Manufacture of other non-metallic mineral products’ (5.5 %), ‘Manufacture of food, beverages and tobacco products’ (5.0%) and ‘Other manufacturing and repair and installation of machinery and equipment’ (3.7%). In the meantime, only two manufacturing sub activities, namely ‘Manufacture of coke and refined petroleum products’ and ‘Manufacture of machinery and equipment’ reported contractions of 13.4% and 2.5% respectively during the second quarter of 2024. Among other industrial activities, ‘Electricity, gas, steam and air conditioning supply’ and ‘Water collection, treatment and supply’ grew by 21.9% and 4.3% respectively in the second quarter of 2024.

Services activities

Most of the services activities recorded expansions in the second quarter of 2024 and collectively reported a 2.5% growth compared to the reported 0.5% contraction in the second quarter of the previous year.

Among the services activities, ‘Accommodation, food and beverage serving activities’ (21.1%),‘Insurance, reinsurance and pension funding’ (14.1%), ‘IT programing consultancy and related activities’(14.0%),‘Postal and courier services’ (13.3%), ‘Telecommunication’ (6.7%), ‘Financial service activities’(5.7%), ‘Programing and broadcasting activities’ (5.3 %), ‘Real estate activities and ownership of dwelling’ (4.2%), ‘Education’ (2.4%), ‘Professional services’ (2.3%), ‘Transportation of goods and passengers including warehousing’ (1.8%), ‘Wholesale and retail trade’ (0.8 %) and ‘Other personal services’ (0.6%) reported positive growth rates in the secondquarter of 2024. On the contrary, only two services activities declined during this quarter, namely ‘Public administration and defence’ (3.1%) and ‘Human health services’ (2.3%)⍐.