June 18, 2018 / 12:41 PM / in 10 months

UPDATE 1-Sri Lanka's Q1 GDP grows at 3.2 pct y/y; uncertainty, currency weigh

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June 18 (Reuters) - Sri Lanka’s economy grew 3.2 percent year-on-year in the first quarter, slowing from 3.5 percent in the fourth quarter, official data showed on Monday as analysts cited political uncertainty and a weaker currency for the slowdown.

Fourth quarter growth, at least, was revised upwards by the Department of Census and Statistics, having been initially reported at 3.2 percent.

The full year growth for 2017 was revised up to 3.3 percent from 3.1 percent. It was still the lowest since the island nation’s economy contracted in 2001, with growth subdued by a combination of tight economic policies and the farm sector suffering a double whammy of drought and floods.

In the first quarter, the farm sector grew at 4.8 percent, the service sector gained at 4.4 percent, while industrial sector expanded at 0.9 percent, the data showed.

The International Monetary Fund (IMF) has forecast economic growth to rebound to 4 percent this year, and the central bank has forecast growth of around 5 percent.

Analysts cited political uncertainties arising from the ruling coalition’s defeat in local government elections in February as a fact behind a loss of business confidence.

“On a selective basis, political uncertainty and the currency weakening might have led to a wait and see approach in the industrial sector,” said Danushka Samarasinghe, head of research at Softlogic Stockbrokers.

“We are yet to see clarity on the political front which leads to concerns of policy consistency and implementation.”

Since a February election setback for President Maithripala Sirisena’s unity government, central bank governor Indrajit Coomaraswamy has warned of risks to growth from political instability.

Following the setback at the polls, 16 legislators from parties in the ruling coalition have defected to the opposition, and disagreements have surfaced between coalition partners, as they eye a presidential election next year.

The political manoeuvring has left President Maithripala Sirisena’s unity government has been struggling to implement its reform agenda.

Tight monetary and fiscal policies, and the rupee’s depreciation, were also factors crimping growth in the first quarter.

In April, the central bank in April unexpectedly cut its key lending rate by 25 basis points to help the economy.

The Sri Lankan rupee is hovering near record low on dollar demand from importers as most exporters are staying on the sidelines expecting further depreciation. (Reporting By Shihar Aneez)

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