Services sector shrinks in 1Q

The country’s dominant services sector has suffered the biggest setback as the economy shrank in the first quarter to 7.9%, from 8% and above a year earlier and fourth quarter of 2011.

Accounting for 57.3% share of the economy, the services sector grew by only 5.8% in the first quarter, down from 9.5% a year earlier and 8.5% in the fourth quarter of 2011. The drop is significant as it amounted to 39% year on year and slightly above 31% quarter-on-quarter.

The wholesale and retail trade sub sector, which accounts for near half of broader services sector and one fifth of overall economy, grew by 7.1%, down from 10.7% a year earlier and 9.9% in 4Q of 2011.

The exports trade sub sector managed only to record a growth of 1.7%, down from 15.3% a year earlier and 6.5% in 4Q of 2011.

The transportation and communication subsector, accounting for 14% of overall GDP, reported a sharper dip in growth, 5.7% as against 12.9% in the 1Q of 2011 and 11.2% in 4Q of 2011. Within the sub sector, posts and telecom had grown y only 6.6%, sharply down from 18.7% a year earlier and 15.4% in 4Q.

Banking, insurance and real estate sub sector accounting for around 8% of the total economy, grew by 7.2% which was lower in comparison to 9.2% a year earlier and 8.8% in 4Q of 2011.

Whilst the setback in the services sector remains the biggest concern, industry sector managed to remain afloat, though its growth was marginally lower.

Accounting for 30% of the economy, industry sector grew by 10.8%, down from 11.1% a year earlier and 10% in 4Q of 2011. The manufacturing sub sector, the biggest within industry sector, reported a 6.7% growth, down from 8.2% in 1Q of 2011 and 7.7% in 4Q of 2011.

The construction sub sector, accounting for 7.7%, grew by 17.5%, confirming buoyancy in comparison to 14.3% a year earlier and 14.4% in 4Q of 2011.

The most positive development was the sharp rebound in agriculture sector, up by 11.5% as against a negative growth of 4.3% in 1Q of 2011 and 2.4% of 4Q of 2011. Its share in the economy remained at 12.7%, marginally up from 12.7% a year earlier.

Whilst major traditional crops tea and rubber dipped by 6.7% and 5.5% year on year, coconut improved by 9.8%. The biggest gain was from paddy, up by 35% as against a negative growth of 20% in 1Q of 2011. In 4Q of last year, paddy grew by 12.4%. Other food crops saw a growth of 11% in comparison to a contraction of 4.6%, and vegetables sub sector grew by 15.3%, a turnaround as against a 5% negative growth a year earlier.

The fisheries sub sector had grown by 6%, though down from 13% improvement in 1Q of 2011 and 15% growth in 4Q of 2011.

The overall growth of the economy was in line with forecast as the Government expects GDP to grow by around 7% this year, down from record 8.3% last year and 8% in 2010.