Business Sentiment – Status Quo Welcomes the New Year

February, 1, 2023

The mercury refuses to budge in the midst of a growing number of economic sensitivities

In its mid-January Global Economic Prospects publication, the World Bank revised its forecast for Sri Lanka’s economic contraction in 2022 to 9.2 percent and projected that the nation will face another year of negative growth estimated at 4.2 percent in 2023.

A return to growth, the bank asserts, will come next year – albeit at an estimated one percent.

In the meantime, there’s been better news more recently, with reports from various sources that both India and China – two of three key bilateral lenders – have formally agreed to help Sri Lanka pursue its debt restricting plans.

The hope therefore, is that this is likely to accelerate the IMF’s US$ 2.9 billion loan facility, which is crucial to Sri Lanka’s hopes of securing the additional funding it desperately needs to tide over the economic crisis.

So where does this leave us in the context of business sentiment?

THE INDEX The LMD-NielsenIQ Business Confidence Index (BCI) stood its ground by remaining where it was a month ago – i.e. at 86 basis points – when the unique survey was conducted in the first week of the new year.

So the business sentiment barograph continues to be a seemingly insurmountable 33 basis points shy of where it stood in January 2022 (122) and far below its highpoint in the last 12 months – 132 in March last year.

That of course, was just before the nation dived into an economic tailspin and the people revolted against the extremities of fiscal mismanagement.

In fact, at the height of the aragalaya, the barometer plummeted to a lowly 49 in both June and July – and it only regained some lost ground when the government commenced bailout talks with the International Monetary Fund in August.

SENSITIVITIES NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya asserts: “The year has started with mixed feelings in anticipation of better things to come as well as a fear that there will be a need to tighten belts further.”

“With local government elections slated for March, it is uncertain where the country would head thereafter,” she adds.

PROJECTIONS We said in the last edition of LMD that “for now the jury is out, and the notable drop in business confidence indicates that the nays have it.”

As it turns out, little has changed – although the direction the BCI will take going forward hinges on a number of sensitivities.

It could well be therefore, that the index will fluctuate as business sentiment ebbs and flows between victories and defeats – as we noted last month.

As for that intangible we call ‘hope,’ the recently released LMD 100 special edition offers a small portion of it. Not only did the nation’s leading listed companies enjoyed a ‘year of resilience’ up to the end of March 2022, but they’ve continued to report healthy top and bottom lines since then.

Whether the rest can say the same is another matter altogether – the SME sector for instance, is fighting for survival in the wake of sky high interest rates, cost escalations, power outages and even an unprecedented brain drain.

– LMD