Monday, October 18, 2010

Upgrade for economy

Given the better than expected GDP growth in 2Q2010, CT Smith Stockbrokers has revised its forecasts for overall GDP growth upward, to 7.2% in 2010 from 6.6% and 7.9% in 2011 from 7.4%.

It said that key sectors of growth include the agriculture, construction, wholesale and retail trade, transportation, banking and leisure segments, with significant (public and private) investment expected in these sectors.

In the second quarter the Lankan economic growth soared to 8.5% YoY in 2Q2010, its highest level in the past decade (albeit off a relatively low base) and above CT Smith Stockbrokers’ forecasts, resulting in 1H2010 economic growth of 7.8% YoY. The economy declined 1.3% QoQ, however, as 2Q is historically the weakest economic quarter. 1H2010 nominal GDP was recorded at US$ 23.8 b.

“Subsequent to the amendment in our expectations, nominal GDP is forecast to rise to US$ 49.6 b in 2010E, and US$ 58.5 b in 2011E, resulting in per capita GDP of US$ 2,398 in 2010E and US$2,795 in 2011E, bolstered by expectations of further appreciation of the Sri Lankan Rupee vs. the US Dollar,” CT Smith Stockbrokers said in an Economic Update.

It said that the Government had taken a number of measures to increase domestic consumption and encourage private sector participation in the economy. Interest rates have declined sharply over the past year, with the Government repeatedly reducing policy rates, while also looking overseas to tap the bond market.
Consumption initiatives include the reduction of import taxes on a number of consumer durables, reducing levies by more than half. Further incentives are expected following the recommendations of a Presidential Tax Commission, which are expected to be incorporated into the Government Budget for 2011.

“We expect growth to continue to remain robust, though presently driven by Government investment in the economy,” the stock broker said.

Numerous opportunities have arisen in the fields of tourism, retail, food and beverages, agriculture, transportation, financial services, etc., although sufficient investment is at present a limiting factor. To address this issue, the Government is looking to rationalise the investment process and reduce the level of bureaucracy, which has been a stumbling point for investment.

The Sri Lankan economy is divided into three sectors; namely, the agriculture sector (accounting for 12.0% of 2009 real GDP), the industry sector (28.6% of GDP) and the services sector (59.3% of GDP).

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