Economy contracts by 1.6% in 1Q | Daily FT

 


  • Agriculture sector shrinks by 6.8% suffering highest decline in 1Q since 2015
  • Shortage of chemical fertilisers had a severe impact on agriculture production
  • Industrial sector contracts by 4.7%; Services grew by only 0.7%
  • 1Q of last year economy grew by 4% and 4Q by 1.8%
  • Department of Census and Statistics attributes considerable contraction of 1Q economy to adverse effects such as inflation, foreign exchange devaluation, dollar deficit and fuel shortage

The economy in the first quarter had contracted by 1.6%, the Department of Census and Statistics (DCS) revealed yesterday, confirming that the country was in a bad shape long before the current crisis emerged. The dismal performance in the first quarter is despite the 2021 fourth quarter registering a 1.8% growth despite the COVID-19 pandemic and 3.3% growth overall last year. In 2021 1Q the economy grew by 4%.

Agriculture and Industrial sectors suffered contractions of 6.8% and 4.7% respectively in 1Q of 2022 while the Service sector recorded a trivial expansion of 0.7% when compared to these values with the first quarter of year 2021.

The share of ‘Agriculture’ was 8.1%, the industrial sector was 31.1% and services was 55.6%. ‘Taxes less subsidies on products’ contributed 5.2% of share to the GDP in 1Q.

The DCS said the “considerable contraction of the economy” was due to adverse effects of some factors such as inflation, foreign exchange devaluation and dollar deficit.

This was after the dawn of the year 2022, Sri Lankan economy beginning to improve slowly, after a difficult period of the COVID-19 pandemic in 2020 and 2021, with new expectations of economic recovery. “Unfortunately, within the first quarter of 2022, the economic growth rate was reported to slow down compared to the first quarter of 2021,” DCS added.

It said the shortage of chemical fertilisers during this period had a severe impact on agriculture productions and especially the production of rice, the country’s staple food crop, declined significantly. “The agricultural economy recorded the highest decline in this quarter since 2015,” DCS revealed.

It also said restrictions imposed on fuel import, which is essential for many industries and services, reduced the production in all manufacturing industries, including the construction industry as well. The industrial sector also reported a significant decline in the first quarter of 2022. However, despite all the adverse conditions prevailing in the country, service activities recorded a mild increase in the first quarter of 2022 when compared to the first quarter of 2021.

The GDP for the first quarter of 2022 at constant (2015) price reported as Rs. 3,463,101 million, compared to Rs. 3,519,921 million recorded in the first quarter of 2021, which recorded a decline of 1.6% in the GDP growth rate in the first quarter of 2022 against the 4% of incline reported in the first quarter of 2021. 

Further, the GDP at current price for the first quarter of 2022 has increased up to Rs. 5,368,465 million from Rs. 4,573,080 million recording a positive change of 17.4%.

Following is DCS analysis of the sectoral performance in 1Q.

Agriculture

In the first quarter of year 2022, the overall agriculture sector recorded 6.8% of considerable contraction when compared to the 6.4% expansion recorded in the first quarter of 2021. The shortage of chemical fertilisers severely affected the yield of most agricultural activities in this quarter. 

Hence, the contractions were reported for most of the agriculture activities. These contractions were recorded as ‘Growing of Rice (33.8%), ‘Growing of Tea (Green leaves)’ (15.0%), ‘Growing of Rubber’ (13.1%), ‘Growing of Cereals (except rice)’ (9.4%), ‘Growing of vegetables’(8.4%) and ‘Growing of Fruits’ (3.8%).

However, the activities of ‘Plant propagation’ and ‘Growing of Oleaginous Fruits (including coconut), recorded considerable expansions by 30.3% and 16.7% respectively during the first quarter of 2022, compared to the first quarter in 2021. 

In addition, the activity of ‘Animal production’ reported a minor expansion while ‘Marine fishing and Marine Aquaculture’ and ‘Fresh water fishing and Freshwater Aquaculture’ have recorded a negative growth rates of 0.5% and 9.3% respectively during the first quarter of year 2022.

Industrial

The overall industrial activities have reported a considerable contraction of 4.7% in this quarter compared to the high expansion of 6% reported in the first quarter of 2021.

All the manufacturing activities have recorded contractions during this period and as a whole, manufacturing activities indicate a 6.9% contraction during the first quarter of year 2022, when compared to the first quarter of year 2021. The ‘Manufacture of coke and refined petroleum product’ has reported the highest contraction of 24.3% in this quarter. 

The highest contributors of the GDP in the manufacturing sector, the ‘Manufacture of food, beverages and tobacco products’ and the ‘Manufacturing of Textiles, wearing apparels and leather products’ also reported contractions of 9.1% and 0.9% respectively in this quarter. 

Further, ‘Manufacture of Chemical products and basic pharmaceutical products’, ‘Manufacture of Furniture’ and ‘Manufacture of Basic metals and fabricated metal products’ contracted considerably by 16%, 13% and 10.4% respectively during the first quarter of 2022 compared to the first quarter of 2021.

In addition, the manufacturing activities of ‘Manufacture of Paper products, printing and reproduction of media products’, ‘Manufacture of Rubber and plastic products’, ‘Other manufacturing, and Repair and installation of machinery and equipment’ and ‘Manufacture of textiles, wearing apparel, leather and other related products’ also reported negative growth rates of 8.8%, 7%, 6.5% and 0.9% respectively during the first quarter of 2022 compared to the first quarter of the previous year.

‘Construction industry’ which has the highest share of 9.3% to the GDP among the industry activities, and the ‘Mining and quarrying’ activity both recorded contractions of 2.2% and 1.5% during the first quarter of the year 2022. Meanwhile the ‘Electricity, gas, steam and air conditioning supply’ activity has reported a positive growth rate of 3.7% in this quarter.

Services

During the first quarter of 2022, the performance of the overall Service sector recorded 0.7% of slight growth rate in overall services related activities. The expansion in the services sector was underpinned specially by the sub activities of ‘Accommodation, Food and beverage service activities’ (25.2%), ‘IT programming consultancy and related activities’ (12.3%), ‘Telecommunication’ (7.9%), ‘Real estate activities, Including Ownership of dwelling’ (3.9%), ‘Public administration and defence; compulsory social security’ (3.4%), ‘Postal and courier activities’ (3.3%), ‘Wholesale and retail trade’ (1%) and ‘Education’ (0.6%).

In addition, all other services related sub activities have reported contractions in their overall performances during the first quarter of year 2022. Among them, ‘Programming and broadcasting activities and audio video productions’ (8.7%), ‘Professional services’ (5.5%’, ‘Insurance, reinsurance and pension funding’ (4.4%), ‘Other personal service activities’ (4%) and ‘Transportation of goods and passengers including warehousing’ (1%) have recorded considerable negative growth rates in this quarter compared to the first quarter of the previous year.