Sri Lanka's economy has officially entered into a period of recession with back-to-back negative growth rates in the first and second quarters amid unending economic and political turmoil, a newspaper reported on Friday.
The first half output has narrowed to 4.8 per cent, with some analysts cautiously optimistic that the worst could be behind the island nation, the Daily Mirror reported.
Agriculture, industry and services activities have declined by 8.4 per cent, 10 per cent per cent and 2.2 per cent respectively.
Sri Lanka’s Gross Domestic Product (GDP) contracted the most in two years in the quarter ended June (2Q22), the first full quarter since the country plunged into a deep economic crisis followed by social and political upheaval, which disrupted most economic activities amid widespread shortages and soaring prices.
The GDP shrank an unsurprising 8.4 per cent in the April-June period compared to the same period last year as the acute shortages in fuel and other commodities and prolonged power cuts, which began around February and became more pronounced and brought the economy into a near standstill in June.
The last worst GDP reading came in the second quarter in 2020 when the economy shrank by 14.8 per cent when the pandemic-related lockdowns choked the economy.
“Specially power disruption, fuel shortage and supply chain disruptions in importing required materials including cement, shortages in supply of fertilisers and chemicals, disruptions in goods and passenger transport and the lower demand made in non-essential services due to the high inflation have made destructive conditions on agriculture, industry and services activities during the period under review,” the Department of Census and Statistics said.
With the sharp contraction in the second quarter, preceded by a modest 1.6 per cent contraction in the first quarter, Sri Lanka has officially entered into a period of recession, the daily said.
A recession is typically defined when an economy suffers two back-to-back quarters of negative growths. As a result, in the first six months the Sri Lankan economy gave up 4.8 per cent of its size.
However, analysts, taking stock of the developments that took place in the economy between June are cautiously optimistic that the worst could be over for Sri Lanka, though the revival of the economy will take considerable time, the Mirror said.
In a key positive development, Sri Lankan authorities recently sealed a staff-level agreement with the International Monetary Fund (IMF) for a four-year $ 2.9 billion Extended Fund Facility.
The government this week confirmed that the international financial and legal advisors appointed by them are engaging with the country’s three major bilateral creditors—China, India and Japan.
However, the country’s US$ 81 billion economy, which is slated to give up over 8 percent of its output by the end of this year, is far from turning a corner and its fragile politics, and the public, which are fast running out of patience, could flip the economy back to square one.
(With UNI inputs)