Economic downturn worsens in 2Q

• GDP contracts by 8.4% in Q2 on the back of 1.6% negative growth in 1Q
• Industry sector suffered most with 10% contraction; agriculture by 8.4% and services by 2.2%

The economic downturn in the second quarter worsened with a contraction of 8.4% on the back of 1.6% negative growth in the preceding three months.

The overall Agriculture activities shrank by 8.4%, Industry by 10% and Services by 2.2%. The 2Q of last year the economy grew by 33% year on year from a lower base of 2Q of COVID-hit 2020.

The Department of Census and Statistics (DCS) said yesterday that the three major economic activities of the economy; ‘Agriculture’, ‘Industry’ and ‘Services’ contributed their share to the GDP at current prices by 10.2%, 32.0% and 49.4% respectively, while ‘Taxes less subsidies on products’ component has contributed 8.4% of share to the GDP in the second quarter of 2022. 

DCS said many economic activities could not continue their businesses as usual due to the prevailing uncertain operating environment and civil unrest conditions.

Specially power disruption, fuel shortage, supply chain disruptions in importing required materials including cement, shortages in supply of fertilisers and chemicals, disruptions in goods and passenger transport and the lower demand made in non-essential services due to the high inflation have made destructive conditions on agriculture, industry and services activities during 2Q.

As a result, many economic activities have been threatened severely; such as growing of cereals, growing of paddy, growing of vegetables, growing of tea, growing of rubber, marine fishing industry, mining and quarrying industry, construction industry, manufacturing industry specially including manufacture of food and beverages, goods and passenger transportation, information technology services, real estate activities, professional services and human health services. 

In addition to these activities, many economic activities were threatened directly or indirectly due to this uncertain operating environment. Hence, during this quarter, the total output of agriculture and industrial activities was reduced whilst reporting a decline in the demand for services, during the quarter under review.

The GDP at current price in 2Q was reported as Rs. 5.37 trillion up from Rs. 4.03 trillion a year ago and at constant price it was Rs. 2.78 trillion from Rs. 3.03 trillion a year ago but higher than Rs. 2.61 trillion recorded in 2Q of 2020. Following is a review of sectoral performance in 2Q;

Performance in Agricultural Activities

In the second quarter of 2022, the agriculture activities contracted by 8.4% when compared to the 11.2% of positive growth recorded in the same quarter in 2021. 

The contraction in the agriculture activities were mainly driven by the ‘Growing of cereals’ (32.3%), ‘Growing of tea’ (19.7%), ‘Growing of paddy’ (15.6%), ‘Marine fishing’ (15.3%), ‘Growing of rubber’ (13.7%), ‘Animal production’ (13.6%) and ‘Growing of vegetables (13.2%).  

However, during this quarter, ‘Fresh water fishing’ (11.2%), ‘Plant propagation and agriculture supporting activities’ (10.8%), ‘Growing of Oleaginous fruits; including Coconut’ (10.5%), ‘Forestry and logging’ (9.0%), ‘Growing of perennial crops’ (3.5%), ‘Growing of spices’ (3.2%) have reported positive growth rates. 

Performance in Industrial Activities

In the second quarter of 2022, the overall industrial activities have reported a shrinkage of 10.0% compared to the high growth of 21.6% reported in the same quarter in the previous year. 

The overall manufacturing industry contracted by 5.3% during the quarter under review.  

However, one of the major manufacturing industries of ‘Manufacture of textiles, wearing apparel and leather related products’ has reported a massive expansion of 28.2% during this quarter when compared with the comparative quarter of 2021. Meanwhile, the other main manufacturing industry of ‘Manufacture of food, beverages and tobacco products’ has reported a decline in the industry by 11.0%. 

In addition, ‘Manufacture of coke and refined petroleum products’ (78.0%), ‘Manufacture of wood and products of wood’ (40.1%), ‘Manufacture of basic metal and fabricated metal products’ (28.6%), ‘Manufacture of other non-metallic mineral products’ (28.4%), ‘Manufacture of rubber and plastic products’ (17.7%) have reported negative growth rates during this quarter. 

In the meantime, ‘Manufacture of paper products’ and ‘Manufacture of furniture’ have reported positive growth rates of 3.3% and 0.2% respectively.

Among the ‘Industrial activities’, the ‘Construction’ activity, which corresponds to 9.5% of share to the GDP, has recorded 16.2% of decline during the second quarter of 2022. Further, the ‘Mining and quarrying’ activity which shared the GDP at 2.0% recorded 26.7% of negative growth rate.

Meanwhile the ‘Electricity, gas, steam and air conditioning supply’ activity has reported a positive growth rate of 1.5% and the ‘Water collection, treatment and supply’ activity has recorded 20.6% of positive growth rate in this year. 

Performance in Services Activities 

During the second quarter of 2022, the performance of the Service sector has shrunk by 2.2% when compared to the same quarter of 2021. 

During the quarter under review, the ‘Financial service activities’ and ‘Insurance services’ reported shortfall by 19.5% and 16.8% respectively. In addition, ‘Professional services’ (9.7%), ‘Programming and broadcasting activities’ (8.4%), ‘Human health services’ (7.5%), ‘Ownership of dwelling and real estate activities’ (6.0%) ‘Goods and passenger transport and warehousing activities’ (0.7%) have reported negative growth rates. 

Moreover, the ‘IT programming consultancy and related activities’ which corresponds to 1.9% of share to the GDP, has reported 4.3% of contraction in the industry during the second quarter of 2022 when compared to the comparative quarter in the previous year. The electricity and power disruption, fuel shortage, forex regulations, uncertain operating environment and civil unrest have been caused significantly for this drawback. 

However, among the services related activities ‘Accommodation, food and beverage serving activities’ (35.3%), ‘Postal and courier services’ (11.7%), ‘Telecommunication services’ (8.6%), ‘Educational services’ (5.0%), ‘Other personal services’ (2.0%) and ‘Wholesale and retail trade’ (1.7%) have reported positive growth rates during the second quarter of 2022. 

According to the DCS, detail information of GDP estimates for the second quarter of 2022 has been published in the DCS website: http://www.statistics.gov.lk/NationalAccounts/StaticalInformation/GDP2015