Sri Lanka’s economy continued to grow robustly in 2014, inflation fell markedly, and the current account deficit narrowed. The election in January 2015 brought a new president into office on a mandate for political and economic change. With parliamentary elections expected in June 2015, the year will be marked by political transition. The outlook is for a continued strong economic performance aided by generally favorable global conditions.
|Selected Economic Indicators (%) - Sri Lanka||2015||2016|
|Current Account Balance (share of GDP)||-1.4||-1.5|
Source: ADB estimates.
Sri Lanka’s gross domestic product grew by 7.4% during 2014, up slightly from 7.2% a year earlier . Continued high growth was driven by faster expansion in industry, which offset substantially weaker growth in agriculture.
Provisional estimates show that industry provided the lift to growth as it advanced by 11.4%, up from 9.9% a year earlier, reflecting fast expansion in construction and a pickup in manufacturing apparel for export. Performance would have been better if not for a temporary slowdown in garment manufacturing and exports in October and November.
Growth in 2015 will be affected by the political transition and the revised priorities of the government. Construction will slow after leading growth in recent years, driven by large government infrastructure projects. Political uncertainty would retard private investment. While investment is likely to lose momentum in 2015, consumption is expected to pick up. Price reductions for food and fuel will encourage private consumption, and government consumption will rise with the shift in the budget toward recurrent expenditure. Somewhat faster growth in advanced economies will benefit export industries such as apparel and tourism. How well agriculture performs after mixed fortunes over the past 5 years will depend on the weather, but increases in government-guaranteed prices for several agricultural products should boost production. Against this backdrop, assuming that politics settle in the second half of 2015 and that investment rebounds, growth is projected to ease to 7.0% in 2015 and then strengthen to 7.3% in 2016.
Excerpted from the Asian Development Outlook 2015.