Highest annual rate of growth in three decades:
Trend suggests fast recovery from 2009 setback:
The Central Bank yesterday said that the country’s economy recorded an impressive growth of eight percent, the highest annual rate of growth reported in three decades. This remarkable achievement reflects a fast recovery from the setback suffered in 2009 and a move to a high and sustainable growth path. According to the 2010 Central Bank report which was released yesterday all key sectors of the economy reflected a commendable performance in 2010, underpinned by the peaceful domestic environment, improved investor confidence, favourable macroeconomic conditions and gradual recovery of the global economy from one of the deepest recession in history.
Read moreInflation continues to remain low at around mid-single digit levels and the benign outlook for inflation enabled the Central Bank to ease its monetary policy stance further in 2010.
While significant demand pressures were absent, improved domestic supply conditions, downward adjustments of certain administered prices and the reduction of import duties on several consumer items had a favourable impact on prices.
An encouraging improvement in the overall fiscal situation was witnessed in 2010 with the recovery in Government revenue supported by the expansion of economic activity, the addressing of certain persistent structural issues in the tax system, as well as the containment of recurrent expenditure.
The overall deficit was reduced to 7.9 percent of GDP in 2010 from 9.9 percent in 2009. The external sector, which made a remarkable turnaround since the second quarter of 2009, continues to improve in 2010. Both exports and imports recovered strongly, while increased earnings from the tourism industry and higher inward remittances offset the widening trade deficit to a great extent, reducing the external current account deficit. Increased capital and financial flows resulted in the balance of payments (BOP) recording a surplus in 2010, further strengthening external reserves of the country.
With favourable macroeconomic conditions and the recovery in economic activity and also with the supportive regulatory and supervisory framework, the performance and stability of the financial sector strengthened in 2010.
The improved performance in all key sectors of the economy contributed towards the high economic growth in 2010. The agriculture sector, which contributed around 11.9 percent of the GDP in 2010, grew by 7.0 percent, compared to 3.2 percent in 2009, mainly driven by the increased production of paddy, tea, rubber and minor export crops along with significant improvements in the fisheries sector output.
The industry sector grew by 8.4 percent supported by increased domestic and external demand with enhanced investor and consumer confidence. Improved performance in industries, such as food and beverages, rubber based products, textiles and garments coupled with increased performance in the construction sector and increased hydropower generation contributed to this growth.
The share of the Industry sector in total GDP increased marginally to 28.7 percent in 2010. Factory industry, which contributed approximately 54.6 percent to the total industry output, recorded a 7.5 percent growth during 2010.
The services sector grew by 8.0 percent in 2010. The wholesale and retail sub sector, which accounts for the largest share in the services sector, grew by 7.5 percent with increased external trade with the gradual recovery of the global economy and domestic trade with the restoration of peace.
The hotels and restaurants sub sector grew sharply by about 39.8 percent underpinned by the strong performance in tourism. Other major sub sectors such as transport and communications, and banking, insurance and real estate also recorded significantly higher growth rates compared to 2009.
Reflecting the recovery in economic activity, consumption expenditure increased by 14.9 percent in 2010, while savings and investment of the country also recovered. As a percentage of GDP, private consumption increased from 64.4 percent in 2009 to 65.8 percent in 2010, while government consumption declined from a high level of 17.6 percent to 15.6 percent.
Both domestic savings and national savings increased, from 17.9 percent of GDP and 23.7 percent of GDP, respectively, in 2009, to 18.7 percent and 24.7 percent, respectively.
Private investment recovered from 17.9 percent of GDP in 2009 to 21.6 percent in 2010, while public investment declined marginally from 6.6 percent of GDP in 2009 to 6.2 percent in 2010, and as a result, total investment as a percentage of GDP in 2010 increased to 27.8 percent.
The recovery in total investment resulted in widening the national savings and investment gap to 3.1 percent of GDP, which was reflected in a higher deficit in the external current account.
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