Business Confidence Rebounds

September, 1, 2021

Sentiment in corporate circles bounces back despite the multitude of challenges

In a midyear economic update, ICRA Lanka revised its forecast for Sri Lanka’s economic growth this year, downgrading it from 3.6 percent to 3.4 percent. The rating agency notes that this projection is based on the assumption that there will not be any major shocks in the second half of the year.

Additionally, the nation’s medium-term growth is expected to remain at around four percent. ICRA Lanka states that “structural weaknesses, external sector vulnerability and the absence of substantial real investments make it difficult for the country to achieve a satisfactory growth level.”

It expects the economy to operate with excess capacity as pandemic induced shocks are likely to last through the year and diminish relatively quickly in subsequent quarters.

On the other hand, at a recent press conference, the Governor of the Central Bank of Sri Lanka (CBSL) maintained that its economic growth forecast of five percent for this year is intact despite the spike in COVID-19 cases and deaths – and that this “momentum will be sustained over the medium term.”

Meanwhile, the latest LMD-NielsenIQ Business Confidence Index (BCI) survey suggests that sentiment has improved – albeit that this was in the first week of August when the poll was carried out and the islandwide immunisation campaign was at its peak. As we know, COVID-19 cases and fatalities have spiralled upwards since then.

THE INDEX The BCI recorded an increase of 11 basis points to 98 in August – its highest point since April. Despite this however, the index remains below its 12 month average (106) and 19 points shy of where it stood a year ago when the government was swept into power at the general election.

NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya offers insights into the latest BCI results: “By the end of July, there were signs of COVID-19 cases abating with the death rate also gradually declining. The vaccination drive is also steadily progressing with 99 percent of the population over 30 having obtained the first dose of the vaccine and around half of this group receiving both doses on 23 August.”

“The economy on the other hand, isn’t doing well with overall year on year inflation – driven by food inflation – reaching 6.1 percent in June, which will impact end consumers,” she adds.

SENSITIVITIES Commenting on the future direction of the index, Miyanadeniya states: “With the onset of a fourth wave where death rates as well as new cases are escalating every day, shortages of gas, milk and sugar – and the announcement of a nationwide lockdown – both the BCI and the Consumer Confidence Index (CCI) are unlikely to fare well in September.”

PROJECTIONS In the August edition of LMD, we noted that the accelerated immunisation drive and receipt of large consignments of vaccines, as well as an easing of ‘travel restrictions,’ could have a positive impact on the BCI. Indeed, this is reflected in the outcome of the latest survey.

But with new cases and deaths on the rise at the time of going to print, and the imposition of a 10 day nationwide lockdown (and the prospect of more of the same), the index could very well free fall to where it stood last month.


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