Economy loses steam in 1Q with lower growth

• GDP grew 4.8% in 1Q of 2025, ending over 5% improvement in previous two quarters and below 5.3% a year ago on the back of recovery following economic crisis
• Agricultural activities decline by 0.7% but Industrial and Services activities expand by 9.7% and 2.8%, respectively; taxes less subsidies on products grows by 8.3%
• 1Q of 2025 marks positive growth rate for consecutive seventh quarter starting from 3Q of 2023

Sri Lanka’s economy in the first quarter of 2025 has shown signs of losing momentum, clocking the second lowest growth in the past year. 

The Department of Census and Statistics (DCS) yesterday confirmed that the country’s Gross Domestic Product (GDP) grew by 4.8% in the first quarter of 2025, lower in comparison to 5.3% achieved a year ago as part of the recovery following the economic crisis. 

The 2025 first quarter also puts a halt to over 5% growth achieved in the previous two quarters and is only better than the 2024 2Q performance of 4.7% growth. 



However, the encouraging development is that the 1Q of 2025 marked a positive growth rate for the consecutive seventh quarter starting from the 3Q of 2023. In the full year of 2024, the economy achieved a complete turnaround, posting 5.5% growth as against a contraction of 2.3% in 2023.

The DCS said in the first quarter of 2025, agricultural activities reported a decline of 0.7%, however, industrial and services activities expanded by 9.7% and 2.8%, respectively. Taxes less subsidies on products grew by 8.3%.

Issuing a communiqué on releasing National Accounts Estimates, the DCS said the three major economic activities of the economy; ‘Agriculture,’ ‘Industry’’ and ‘Services’ stood at 7.6%, 26.7%, and 57.4%, respectively, as their shares to the GDP of the economy and ‘Taxes Less Subsidies on Products’ accounted for a share of 8.3%.

The DCS said the reported growth in the first quarter of 2025 is mainly underpinned by few economic activities. It is noteworthy that financial and insurance services, manufacturing industry, construction industry, mining and quarrying industry, and accommodation services sat firmly behind this reported growth in the 1Q of 2025. A relatively stable exchange rate and low interest rate were seen as the main contributors to this growth and, more importantly, provided pathways for domestic credit to increase and imports of investment goods as well as intermediate goods to increase.

The DCS gave the following commentary on sectoral performance. 

In the 1Q of 2025, agriculture activities reported a 0.7% decline when compared to the 0.9% expansion which was reported in the same quarter a year ago.

Even though some important agriculture activities; ‘Animal Production’ (18.8%), ‘Marine Fishing’ (14.5%), ‘Growing of Tea’ (5.6%), ‘Forestry and Logging’ (4.3%), ‘Growing of Vegetables’ (2.9%), ‘Growing of Spices’ (2.7%) and ‘Growing of Fruits’ (2.0%) reported some interesting increases, it was down to an overall decline owing to reported contractions in ‘Fresh Water Fishing and Fresh Water Aquaculture’ (57.0%), ‘Growing of Oleaginous Fruits’ (27.6%), ‘Growing of Rubber’ (22.2%), ‘Growing of Sugar Cane and Tobacco’ (2.7%), ‘Growing of Other Perennial Crops’ ( 1.9%), ‘Growing of Rice’ (0.8%) and ‘Growing of Cereals’ (0.4%). 

In fact, the remaining agriculture activities too reported expansions, namely ‘Growing of Coffee, Cocoa and Other Beverages Crops’ (12.5%), ‘Plant Propagation’ (7.7%), and ‘Agriculture Supporting Activities’ (1.2%).

Being the main facilitator for the reported overall growth in the economy, industrial activities grew by 9.7% in the 1Q of 2025 compared to the observed 11.2% growth which was reported a year ago. 

Among the industrial activities benefitting from the increased supply of investment goods, imports, and decreased input prices, the construction industry and mining industry grew by 10.7% and 12.6%, respectively. Similarly, the overall manufacturing industry showed a 9.6% remarkable increase during the 1Q of 2025. Among the manufacturing activities, except two activities, namely ‘Other Manufacturing and Repair and Installation of Machinery and Equipment,’ which reported a 10.6% decline, and ‘Manufacture of Coke and Refined Petroleum Products,’ which reported neither growth nor decline, all other manufacturing sub-activities reported expansions during the first quarter of 2025. Thus, ‘Manufacture of Furniture’ (23.9%), ‘Manufacture of Paper and Paper Products’ (23.2%), ‘Manufacture of Other Non-Metallic Mineral Products’ (22.9%), ‘Manufacture of Textiles, Wearing Apparel, Leather and Other Related Products’ (16.5%), ‘Manufacture of Basic Metal And Fabricated Metal Products’ (9.6%), ‘Manufacture of Machinery And Equipment’ (7.1%), ‘Manufacture of Food, Beverages and Tobacco Products’ (5.7%), ‘Manufacture of Wood and Wood Products’ (3.4%), ‘Manufacture of Rubber and Plastic Products’ (3.4%), and ‘Manufacture of Chemical Products and Basic Pharmaceutical Products’ (1.7%) reported expansions during the first quarter of 2025.

Among other industrial activities; ‘Electricity, Gas, Steam and Air Conditioning Supply’ and ‘Sewerage, Waste Treatment and Disposal Activities’ grew by 3.4% and 7.9%, respectively, while ‘Water Collection, Treatment and Supply’ declined by 3.2%.

Services activities reported a 2.8% growth in the first quarter of 2025 compared to the reported 2.5% increase in the same quarter a year ago.

Apart from the reported 2.9% negative growth in the ‘Public Administration and Defence’ sub activity, all other services sub-activities reported increases. Hence, the reported growth in the services activities was backed by ‘Insurance, Reinsurance And Pension Funding’ (17.4%), ‘Financial Service Activities’ (14.6%), ‘Accommodation, Food and Beverage Serving Activities’ (14.0%), ‘IT Programing Consultancy and Related Activities’ (6.2%), ‘Postal and Courier Services’ (4.5%), ‘Real Estate Activities and Ownership Of Dwelling’ (3.1%), ‘Telecommunication’ (2.6%), ‘Transportation of Goods And Passengers Including Warehousing’ (2.1%), ‘Professional Services’ (1.7%), ‘Wholesale and Retail Trade’ (1.2%), ‘Programing and Broadcasting Activities’ (1.2%), ‘Other Personal Services’ (0.7%), ‘Human Health Services’ (0.5%), and ‘Education’ (0.4%), respectively.