The economy grows by 5.3% in the first quarter, driven by the industrial sector

• Industrial activity, which accounts for 26.2% of the economy, grew by 11.8%; the dominant service sector grows by 2.6% and agriculture by 1.1%
• The Department of Census and Statistics cites low inflation and interest rates, increased liquidity in the foreign exchange market, and the removal of import restrictions as the reasons for the favorable impact on almost all manufacturing activity in the first quarter.

Sri Lanka’s economy grew 5.3% year-on-year in the first quarter, maintaining the growth momentum seen since September last year.

The positive development was driven by the growth of the industrial sector accounting for 26.2% by a high 11.8% from a low base, while the services sector accounting for 58.9% grew by 2.6% and the agricultural economy accounting for 7.7% improved by 1.1% compared to the first quarter of last year. Additionally, as the Department of Census and Statistics (DCS) announced yesterday, taxes less subsidies on products representing 7.2% of GDP increased by 10% in the first quarter of 2024.

The industrial sector grew by 7.9% in the fourth quarter of last year, although it ended 2023 with a decline of 9.2%. The agriculture and services sectors grew by 0.6% and 2.8%, respectively.

Overall, the economy contracted by 2.3% in 2023, compared to 7.8% in 2022. Agricultural activities in 2023 grew by 2.6%, and service activities contracted by 0.2% respectively.

“The Sri Lankan economy recorded a more favorable economic situation in the first quarter of 2024 compared to the first quarter of 2023.” – said DCS.

Inflation remained high in the first quarter of 2023 and gradually declined to lower levels by the first quarter of 2024, and this low inflation provided encouragement to the economy by providing inputs at much lower prices.

This effect was more visible in the construction industry, which was seriously affected by high prices of production inputs in the first quarter of 2023. In parallel with the decline in inflation, the interest rate also showed a downward trend at the end of the first quarter of 2024. Moreover, thanks to increased liquidity in the foreign exchange market, the further easing of import restrictions had a more favorable impact on almost all manufacturing activities in the first quarter of 2024. Moreover, as a result of the increase in tourist arrivals, many activities related to the tourism industry showed growth in this quarter, DCS said.

Below is a brief commentary on the sector’s performance.

Agricultural activities

In the first quarter of 2024, agricultural activities grew by 1.1% compared to the 1.6% growth recorded in the same quarter of 2023.

This 1.1% increase in agricultural activities was largely due to increases in: “Cereal Crops” (22.4%), “Freshwater Fisheries and Freshwater Aquaculture” (18.1%), “Animal Production” (6.1%). ), “Supporting agricultural activities” (4.2%), “Fruit cultivation” (3.4%), “Rice cultivation” (2.8%), “Spice cultivation” (1.6%) and “Sea fishing and marine aquaculture” (1.1%).

Meanwhile, some agricultural activities, namely “Plant propagation” (26.3%), “Rubber cultivation” (7.4%), “Cultivation of other perennial plants” (6.3%), “Vegetable cultivation” (5, 1%), “Cultivation of other perennial crops” Tea cultivation (4.1%), “Forestry and logging” (2.8%) and “Oil fruit cultivation” (0.4%) recorded declines in the first quarter of 2024 .

Industrial activities

Total industrial activity increased by 11.8% in the first quarter of 2024 compared to a recorded decline of 24.3% in the first quarter of the previous year.

Among “Industrial activities”, which coincided with the decline in prices of inputs, “Construction” recorded an increase of 14.2%, while in the industry “Mining and quarrying” recorded an increase of 18.3% in this quarter.

Similarly, the overall manufacturing industry grew by 10.6% in the first quarter of 2024, driven by increases in almost all manufacturing sub-activities, with the exception of “Paper and Paper Products Manufacturing,” which recorded a decline of 2.9% in the quarter. Any other sub-activities in the manufacturing sector, namely:

“Production of metals and finished metal products” (43.3%), “Production of coke and refined petroleum products” (31.6%), “Production of chemical products and basic pharmaceutical products” (19.9%), “Other activities production and repair as well as assembly of machines and devices” (19.2%), “Production of food, beverages and tobacco products” (11.9%), “Production of wood and wood products” (10.0%), “Production of made of rubber and plastics” (9.7%), “Production of machinery and equipment” (8.3%), “Production of textiles, clothing, leather and other related products” (6.6%), “Production of other products from non-metallic minerals” (5.3%) and “Furniture production” (1.3%) recorded expansion in the first quarter of 2024.

Among other industrial activities; In the first quarter of 2024, the “Electricity, gas, steam and air conditioning” and “Water abstraction, treatment and supply” sections increased by 11.7% and 12.9%, respectively.

Service activities

Most service businesses expanded in the first quarter of 2024 and recorded 2.6% overall growth in the services sector compared to the recorded 4.6% contraction in the first quarter of the previous year.

Among the service activities: “Accommodation, catering activities” (40.4%), “Insurance, reinsurance and pension funds” (17.8), “Postal and courier services” (5.1%), “Transport of goods and people, including including storage “(3.5%), “Real estate services and ownership of residential premises” (3.1%), “Programming and broadcasting activities” (2.5%), “Professional services” (2.3%), ” Education” (2.1%), “Telecommunications “Wholesale and Retail Trade” (1.1%), “Other Personal Services” (1.1%) and “Financial Services” (0.8%) recorded positive growth rates in the first quarter of 2024

On the other hand, only three service activities declined this quarter, namely “IT programming consultancy and related activities” (5.2%), “public administration and defense” (4.2%), and “IT services human health” (0.7%).

DCS also reported that the GDP for Q1 2024 at constant price (2015) increased to Rs. 3,329,583 million rupees 3,161,963 million recorded in the first quarter of 2023.

Moreover, Sri Lanka’s GDP for the first quarter of 2024 at current prices increased to Rs. 7,959,032 million rupees 7,339,004 million recorded in the same quarter of 2023, recording an 8.4% positive change in the current price of GDP.