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GDP Growth Signals Economic Recovery
Sri Lanka's GDP surged to Rs. 3,329,583 million in Q1 2024 from Rs. 3,161,963 million in Q1 2023, marking a year-on-year growth of 5.3%. This increase reflects a robust recovery across various sectors, emphasizing the economy's resilience and adaptive response to previous economic challenges.
Industrial Sector Leads with Double-Digit Growth
The industrial sector showcased a significant rebound, expanding by 11.8% in the first quarter of 2024. This growth was primarily driven by notable performances in construction, which increased by 14.2%, and mining and quarrying, which rose by 18.3%. Manufacturing also saw a comprehensive upturn of 10.6%, further bolstering the industrial expansion.
Agricultural and Services Sectors Show Varied Performance
Agriculture experienced a modest growth of 1.1%, with notable increases in specific areas like cereal growth (22.4%) and freshwater fishing (18.1%). Conversely, the services sector grew by 2.6%, with significant contributions from accommodation and food services, which soared by 40.4%, and insurance activities, which climbed by 17.8%.
Economic Indicators Reflect Favorable Market Conditions
The positive shift in GDP is also mirrored in other economic indicators. Current price GDP rose by 8.4% to Rs. 7,959,032 million, with taxes less subsidies on products growing by 10.0%. The detailed sectoral growth underscores a broader economic enhancement, driven by lowered inflation and favorable policy adjustments facilitating market activities.
Last Updated August 2024
July's AWLR reaches the Lowest Rate in 2024
By July 2024, the AWLR had reached its lowest point at 12.25%, a subtle yet significant reduction of 22 basis points from June's rate of 12.47%. This continued easing is aligned with a 725 basis point reduction in policy rates and broader economic strategies to bolster economic activities, setting a favorable stage for borrowers and investors looking to capitalize on lower borrowing costs.
Steady Decline in Lending Rates Reflects Easing Monetary Policy
The AWLR in Sri Lanka has shown a consistent downward trend from January to July 2024, decreasing from 13.88% to 12.25%. This 163 basis points drop indicates a significant easing of borrowing costs over the six-month period, reflecting the Central Bank's likely efforts to stimulate economic growth by lowering interest rates. Lower lending rates have spurred increased borrowing from businesses and consumers, supporting investment and consumption across the economy. This trend is beneficial for sectors such has real estate and consumer goods, where financing costs can be a barrier to spending and investment.
First Quarter Review: Substantial Reduction in Rates
In the first quarter of 2024, the AWLR reduced notably from 13.88% in January to 13.43% by March, marking a 45 basis point reduction. This decrease suggests an adaptive response to improving economic conditions or a strategic move to encourage more borrowing and investment amidst a recovering economic environment.
Continued Decrease Through the Second Quarter
The trend of decreasing rates continued into the second quarter, with the AWLR falling from 13.14% in April to 12.25% by July. The total reduction of 89 basis points during this quarter is slightly more pronounced than in the first, highlighting ongoing monetary relaxation or improved liquidity within the banking system.
Future Outlook and Monetary Policy Implications
Looking forward, if the AWLR continues to trend downward, it could further enhance credit growth and economic expansion. However, the Central Bank will need to monitor inflationary pressures and adjust monetary policy accordingly to maintain economic stability.
Last Updated September 2024
Trend of Credit Growth in the Private Sector
From March 2023 to June 2024, credit to the private sector exhibited a fluctuating yet upward trend, increasing from Rs. 7,152.80 billion to Rs. 7,512.40 billion. The growth rate accelerated particularly in the year 2024, demonstrating a rebound from earlier fluctuations.
Quarterly Growth Analysis
Throughout 2023, the credit extended by financial institutions saw minimal increases, peaking in December at Rs. 7,366.40 billion. Starting 2024, there was a notable fluctuation in growth, with a slight dip in January to Rs. 7,314.20 billion followed by a gradual increase each subsequent month, culminating in Rs. 7,512.40 billion by June.
Year-over-Year Growth Perspective
Comparing June 2023 and June 2024, there was a net increase of Rs. 432.90 billion, reflecting a year-over-year growth rate of approximately 6.05%. This growth indicates an enhanced lending environment and possibly improved economic conditions or confidence in the private sector.
Month-over-Month Growth Perspective
Analyzing month-over-month changes in private sector credit from January to June 2024 shows nuanced borrowing trends. January credit was Rs. 7,314.20 billion, modestly rising by 0.10% in February to Rs. 7,321.50 billion. March saw a notable increase of 0.98% to Rs. 7,393.40 billion, hinting at increased economic confidence or favorable lending conditions. April recorded a slight decline of 0.22%, then rebounded in May with a 0.82% increase to Rs. 7,437.90 billion. June witnessed a significant 1.00% rise, ending at Rs. 7,512.40 billion, likely due to effective economic policies and a favorable lending climate.
Implications and Outlook
The consistent increase in private sector credit from early 2024 onwards suggests strengthening economic activities or improved borrowing conditions. The rise in June 2024 by Rs. 74.50 billion from May 2024, representing a monthly growth rate of about 1%, points towards a sustained positive momentum in borrowing, likely driven by favorable interest rates and economic policies.
Last Updated September 2024