Economy contracts by 1.6% in 1Q before COVID-19 hit

Wednesday, 5 August 2020 03:53 -     - {{hitsCtrl.values.hits}}

  • Agriculture and Industrial Activities contract by 5.6%, 7.8% respectively
  • Services sector activities expand by 3.1%
  • Department of Census and Statistics attributes contraction to Easter Sunday attacks, COVID-19 impact, though 1Q covers only 1 January to 31 March
  • Warns impact of COVID-19 will be felt much more in 2Q 2020

The economy has contracted by 1.6% in the first quarter of this year, as against a 3.7% improvement a year earlier, prompting analysts to flag off concern, as the negative growth was ahead of the COVID-19 impact.

The Department of Census and Statistics, releasing preliminary national accounts estimates, said yesterday that the GDP growth rate for the first quarter of 2020 has been estimated as 1.6% of negative growth rate, when compared to the 3.7% of positive growth recorded in the first quarter of 2019. 

The Gross Domestic Product for Sri Lanka for the first quarter of 2020 at constant (2010) price has declined, down to Rs. 2,292,589 million from Rs. 2,330,053 million recorded in the first quarter of 2019. However, the Gross Domestic Product for Sri Lanka for the first quarter of 2020 at current price has increased marginally, up to Rs. 3,845,900 million from Rs. 3,773,551 million recorded in the first quarter of 2019, registering 1.9% of change in the current price GDP estimate.

The first quarter 2019 is comparatively a normal quarter, which recorded relatively high positive growth rate of 3.7%. The first quarter of 2019 GDP covers approximately 90 working days in calculating the GDP. 

However, due to the curfew imposed in all districts of the country, in the last two weeks of the first quarter (from 20 to 31 March) in the year 2020, the normal activities of the whole country stopped and did not perform in economic activities as in the previous year, except in a few essential services.

The four major components of the economy, ‘Agriculture’, ‘Industry’, ‘Services’ and ‘Taxes less subsidies on products’ have contributed their share to the GDP at current prices by 7.3%, 28.4%, 58.3%, and 6.0% respectively, in the first quarter of 2020. 

The Department said as a result of the COVID-19 outbreak, many sectors in the economy suffered a lot, and it led to a slow-down in the country’s economic performance. Accordingly, GDP estimates of the first quarter of 2020 have reported contraction in Agriculture and Industrial activities by 5.6% and 7.8%, respectively. However, during the first quarter of 2020, Services sector activities continued to expand further by 3.1%.

The Department said the impact of the pandemic was felt severely in this quarter, as the economy, which operates at the maximum capacity before the dawn of the Sinhala and Tamil New Year, failed to function at peak level, due to the lockdown conditions which commenced at the end of the first quarter. “Nevertheless, the deep impacts of last year’s Easter Sunday attacks in April 2019 on the economy continued to trouble several sectors, which could not recover the economic growth prospects in those sectors, by further contributing to the economic downturn,” the Department added.

It said generally, the release of quarterly GDP estimates is after completion of 75 days in each quarter.

The GDP release dates are published in the Advance Data Release Calendar (ADRC) of the Department website. Accordingly, the first quarter GDP estimates should have been released on 19 June 2020. However, this year, due to the COVID-19 impact, DCS faced many difficulties and challenges in gathering data and information during the months of May and June from the Government, semi-Government and private sector institutions in the country. 

In addition, the data availability of many institutions, and the quality of data, were not at satisfactory levels due to operational impediments at ground level, due to the restrictions imposed by the Government and the regulations provided by the Ministry of Health regarding the spreading of COVID-19, such as limiting the number of staff during normal working hours. Therefore, DCS had to further verify the data received from these institutions for accuracy. This requirement caused the postponement of the release of the first quarter GDP estimates by a few weeks.

DCS said national accounts estimates of the first quarter 2020 reflect the continuing negative effects of the Easter Sunday attacks in April 2019, compounded by the deep impacts of the onset of the COVID-19 pandemic, as it affected the peak output conditions usually experienced before the dawn of the

Sinhala and Tamil New Year. 

The impacts of COVID-19 will be felt much more in the second quarter of 2020, as it continued to spread throughout the country since early March 2020.

However, the global impacts of the pandemic were felt since the last quarter of the year 2019, as it impacted the important regions of the world well before it affected Sri Lanka, DCS said. 

“Therefore, Sri Lanka experienced a decline in global demand for the country’s exports and delays in raw material acquisition, mainly from China, and reduction in tourist arrivals due to unsafe travel and the travel bans imposed by the world’s Governments,” it said.

“As a result, many sectors of the country were severely affected, especially the manufacturing, construction, transportation, and tourism industries,” DCS added. 

The experts have labelled this as the worst slowdown in economies since the 2001 world economic recession. The whole world experienced contraction in many economies due to the COVID-19 pandemic. Following that, Sri Lanka too faced this difficult situation in the first quarter of 2020, recording a contraction in quarterly economic growth rate (1 .6% of contraction).

Accordingly, the COVID-19 outbreak has affected unexpectedly in many sectors of the economy, especially manufacturing, construction, passenger transport (land and air), mining and quarrying, tourism, retail trade and some activities of agriculture such as fishing, DCS added. 

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