Ceylon FT: JB Securities Research forecasts the economy would grow by 5.5% to 6% in the short to medium term despite higher official estimates that don't add up when compared with primary data and ground realities.
"We forecast economic growth to hover at 5.5 - 6% in the short to medium term. Official growth statistics indicate higher levels but we find it difficult to reconcile this with primary indicators and the ground situation," JB Securities Research said in a report 'Sri Lanka: Value is Back in Equities'.
It said non-tradable sectors such as construction, mining and quarrying, post and telecommunication, electricity, gas and water, passenger, goods and railway transport were higher than GDP growth.
Manufacturing, private services and domestic trade grew on par with GDP growth.
Banking, insurance and real estate, agriculture, livestock and forestry, cargo-ports and civil aviation, ownership of dwellings, import trade and government services lagged economic growth.
Exports as a percentage of GDP are at historic lows.
"Tourism remains a sunrise industry with a high trickle down effect. We expect Asian tourists to boost visitor arrival growth to around 20% but their shorter stays to lead to guest night growth of around 10%. New room inventory is coming on stream to meet the new demand.
"The ongoing demographic transition has reduced the dependency ratio and provided a bulge in the working age population. Female labour participation remains low at only 35% - potential for workforce growth from this segment.
"IT-enabled industries continue to show steady growth, although quantification is a challenge since they are intangibles and don't cross borders. Nevertheless, new businesses and expansion of existing ones are creating higher-paying white collar jobs.
"Economic recovery in the US and EU is increasing demand for the country's manufactured exports – this bodes well for the rubber and apparel industries.
"Pressure on the currency from the current account channel is subdued due to a lower merchandise trade balance, higher service income and remittances. In contrast, outflows from maturing bonds on the financial channel are a possibility due to LKR yields narrowing and converging with those of USD sovereigns. Recent sovereign issuances have boosted reserves, thus outlook for the currency is benign with an appreciation bias.
"We expect headline inflation to trend up to high single digit levels from higher food inflation due to the ongoing drought. Private sector credit growth remains weak, thus we expect interest rates to remain at these levels for the rest of this year.
"Confrontational foreign policy with the west and fallout from the ongoing UN human rights probe remain a concern – the economy is highly dependent on the US and EU for its export markets and tourism arrivals," JB Securities said.
The International Monetary Fund (IMF) has forecast a growth rate of 7% this year, lower than the official forecast of 7.5%. In a report published in 2013, the IMF heavily criticized the country's official data regime.
Provisional projections published by the Treasury's 2013 annual report showed that economic growth had slumped to 6.4% during the first quarter of 2014.
The slump comes after an 8.2% economic growth rate the previous quarter ended December 2013, 7.9% for the September 2013 quarter and 6.8% for the June 2013 quarter. The economy grew at 6.1% for the March 2013 quarter.
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"We forecast economic growth to hover at 5.5 - 6% in the short to medium term. Official growth statistics indicate higher levels but we find it difficult to reconcile this with primary indicators and the ground situation," JB Securities Research said in a report 'Sri Lanka: Value is Back in Equities'.
It said non-tradable sectors such as construction, mining and quarrying, post and telecommunication, electricity, gas and water, passenger, goods and railway transport were higher than GDP growth.
Manufacturing, private services and domestic trade grew on par with GDP growth.
Banking, insurance and real estate, agriculture, livestock and forestry, cargo-ports and civil aviation, ownership of dwellings, import trade and government services lagged economic growth.
Exports as a percentage of GDP are at historic lows.
"Tourism remains a sunrise industry with a high trickle down effect. We expect Asian tourists to boost visitor arrival growth to around 20% but their shorter stays to lead to guest night growth of around 10%. New room inventory is coming on stream to meet the new demand.
"The ongoing demographic transition has reduced the dependency ratio and provided a bulge in the working age population. Female labour participation remains low at only 35% - potential for workforce growth from this segment.
"IT-enabled industries continue to show steady growth, although quantification is a challenge since they are intangibles and don't cross borders. Nevertheless, new businesses and expansion of existing ones are creating higher-paying white collar jobs.
"Economic recovery in the US and EU is increasing demand for the country's manufactured exports – this bodes well for the rubber and apparel industries.
"Pressure on the currency from the current account channel is subdued due to a lower merchandise trade balance, higher service income and remittances. In contrast, outflows from maturing bonds on the financial channel are a possibility due to LKR yields narrowing and converging with those of USD sovereigns. Recent sovereign issuances have boosted reserves, thus outlook for the currency is benign with an appreciation bias.
"We expect headline inflation to trend up to high single digit levels from higher food inflation due to the ongoing drought. Private sector credit growth remains weak, thus we expect interest rates to remain at these levels for the rest of this year.
"Confrontational foreign policy with the west and fallout from the ongoing UN human rights probe remain a concern – the economy is highly dependent on the US and EU for its export markets and tourism arrivals," JB Securities said.
The International Monetary Fund (IMF) has forecast a growth rate of 7% this year, lower than the official forecast of 7.5%. In a report published in 2013, the IMF heavily criticized the country's official data regime.
Provisional projections published by the Treasury's 2013 annual report showed that economic growth had slumped to 6.4% during the first quarter of 2014.
The slump comes after an 8.2% economic growth rate the previous quarter ended December 2013, 7.9% for the September 2013 quarter and 6.8% for the June 2013 quarter. The economy grew at 6.1% for the March 2013 quarter.
www.ceylontoday.lk
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