Sri Lanka exceeds economic performance expectations: ADB

The Asian Development Bank (ADB) reports that Sri Lanka’s economic performance in Q1 2024 exceeded expectations outlined in the April 2024 Asian Development Outlook (ADO).

The report indicates that inflation forecasts for South Asia have been nudged up to 7.1% for 2024 and remain at 5.8% for 2025.

Although the inflation forecasts for Bhutan, India, and Pakistan for FY2024 and FY2025 remain unchanged from the ADO April 2024 predictions, inflation projections for Bangladesh (double digits) and the Maldives (3%) are now expected to be higher.

In Nepal, average inflation moderated to 5.8%. Pakistan had the highest inflation rate among South Asian economies at 23.06%.

In contrast, Sri Lanka’s inflation forecast for 2024 has been revised down to under 2% (from 70% two years ago) due to improved supply-side conditions, better external buffers, and increased availability of foreign currency.

However, the ADO states that growth forecasts for Sri Lanka for 2024 and 2025 remain unchanged due to uncertainties as the election cycle begins in the latter half of the year.

Developing Asia’s growth accelerated early this year, supported by a relatively stable global economy. The region’s economy remained robust in Q1 2024, driven by strong export growth and solid domestic demand.

Downward revisions for GDP growth in Bangladesh and the Maldives over the forecast period are offset in 2024 by upward revisions for Bhutan, Nepal, and Pakistan, keeping the region’s 2024 growth forecast unchanged at 6.3%.

The construction sector’s dampened performance is the main reason for lower growth forecasts for the Maldives in 2024 and 2025, with lower-than-expected growth in the fisheries sector also contributing.

Bhutan’s GDP growth forecast for 2024 is adjusted upward due to a greater-than-expected increase in the government budget for FY2024 (ended June 30, 2024) and better tourism prospects. Nepal’s GDP projection for FY2024 (ending mid-July 2024) is also revised up due to higher-than-expected growth in agriculture and services.

The provisional government estimate of GDP growth in Pakistan for FY2024 (ending June 30, 2024) stands at 2.4%, reflecting robust agricultural output due to improved weather conditions and subsidized government credit, among other factors.

While Afghanistan’s economy shows signs of recovery, the weak investment climate, tight fiscal space, and waning international humanitarian and basic needs support underline its fragility.

The Indian economy is on track to grow by 7.0% in FY2024 and 7.2% in FY2025, as projected in ADO April 2024. Services continued to expand robustly in Q4 of FY2023.

Industry is also expected to grow robustly, driven by manufacturing and strong demand for construction led by housing.

The growth forecast for South Asia remains steady at 6.3% for 2024, with the 2025 projection down marginally to 6.5%.

Despite some changes in individual economies, growth forecasts for Southeast Asia remain at 4.6% in 2024 and 4.7% in 2025, and for the Pacific at 3.3% in 2024 and 4.0% in 2025.

East Asia’s 2024 growth projection is revised up to 4.6% due to strong exports of semiconductors and other goods driven by the artificial intelligence boom, with the 2025 projection maintained at 4.2%.

The outlook for growth in the Caucasus and Central Asia is raised to 4.5% from 4.3% in 2024 and to 5.1% from 5.0% in 2025.

Interest rates in the United States and other advanced economies continue to shape the outlook, which is subject to several downside risks.

Uncertainty regarding the United States election outcome, elevated geopolitical tensions and trade fragmentation, property market fragility in the People’s Republic of China, and weather-related events could hurt growth.