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Wednesday, March 30, 2011

UPDATE 1-Peace helps Sri Lanka growth to 32-year high in 2010

* Economy grew 8 pct 2010, fastest pace since 1978

* Driven by post-war optimism

* Rising oil and commodity prices, floods, threaten growth

(Adds details, background)

By Shihar Aneez and Ranga Sirilal

COLOMBO, March 29 (Reuters) - Sri Lanka's economy grew at 8 percent in 2010, its fastest rate in 32 years, as the country enjoyed its first full-year expansion after the end of a 25-year civil war, the government said on Tuesday.

The GDP rise, which was in line with forecasts, followed growth of 3.5 percent in the Indian Ocean island nation in 2009.

The economy grew a more-than-expected 8.6 percent in the fourth quarter, accelerating from 8.0 percent in the previous quarter, the state-run Department of Census and Statistics said.

A Reuters poll had forecast a rise in full-year gross domestic product of 8.0 percent and Q4 growth of 8.1 percent. [ID:nL3E7EM1XU]

"The major reason for these increments is the prevailing peace across the country," the Department said on its website.

Sri Lanka's three-decade war ended in May 2009 and analysts and economists have said post-war optimism could help the country achieve its economic potential.

Sri Lanka's highest annual growth performance since independence was 8.2 percent in 1978, a year after the country totally liberalised its economy.

The Statistics Department said the economy's three major sectors -- agriculture, industry, and services -- had registered 2010 growth of 7.0 percent, 8.4 percent and 8.0 percent respectively. Industry and Services Sectors growth was the highest since 2002.

Sri Lankan President Mahinda Rajapaksa said on Monday the $50 billion economy will grow by up to 8.5 percent this year despite internal and external shocks, its highest rate since independence in 1948. [ID:nL3E7ES14J]

Sri Lanka imports all its oil, and Rajapaksa said the government might increase local fuel prices in line with global prices, which have spiked because of unrest in the oil-producing Middle East and North Africa. [ID:nRISKLK]

Analysts have said the impact of high global commodity prices coupled with recent floods, which the government estimates caused $500 million of damage, could cause Sri Lanka to miss its 2011 growth target of 8.5 percent. [ID:nSGE715006]

On Monday, the central bank revised up its end-2011 annual average inflation target to 7 percent from 6 percent due to rising commodity prices, especially crude oil, and supply disruption in agriculture products after two rounds of floods in the first two months of this year. [ID:nL3E7ES2H]

The crises in Libya and the Middle East could lower remittances from Sri Lankan expatriate workers and hit demand from that region for tea, as well as fuelling inflation. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Catherine Evans)

source - in.reuters.com