Bombings seen slowing Sri Lankan demand, economic growth

ECONOMYNEXT – Easter Sunday’s suicide bombings in Sri Lanka which killed over 250 people will result in slower consumer demand and reduce already low economic growth, economists and analysts said.

"The main impact on economic growth will come from lackluster demand conditions due to the current situation which is already seen to impact businesses," said an analyst at Frontier Research.

A short-term hit on consumption is expected from the disruption caused by the bombings of three churches and three hotels and reduced travel by people who fear more attacks.

Businesses are likely to invest less owing to an uncertain economic climate.

Economic growth in 2019 was forecast to be above 4 percent in the start of the year.

"With the impact of the recent power outages, little leeway in the budget, and more importantly the attacks, the growth forecast will be significantly revised downwards," an analyst said.

"There would be a near term impact on consumption. In essence, it would exacerbate and prolong what has already been a tough few years for the consumer and retail sectors.

“So, it’s likely that businesses would take strategic and investment decisions based on a more uncertain future and a cautious consumer," said the analyst at Research Frontier.

Sri Lanka’s tourism sector was visibly shaken.

Sri Lanka was chosen the best country to visit in 2019 by the Lonely Planet guide.





"Tourists have become extremely cautious once again; arrivals are estimated to have plunged by 70 percent in the immediate aftermath," said Dushni Weerakoon, Executive Director of the Institute of Policy Studies.
“In the next two months, the drop is expected to be 50 percent. Mirroring the plunge in tourist arrivals, cancellation of flight bookings was at over 80 percent, whilst new bookings too have fallen away.

"The opportunity cost for the industry of not being able to leverage on the Lonely Planet’s ‘top country for travel in 2019’ ranking will be considerable, with the long term consequences yet to be determined," she wrote in an IPS analysis.

The attacks led to a further weakening of the rupee against the US dollar, after the local currency had strengthened in recent months following last year’s plunge.

"The loss of foreign tourism revenue and investments will hit Sri Lanka in its most vulnerable spot – i.e., foreign exchange reserves," Weerakoon said.

"However, as a country that had withstood more than three decades of terror prior to May 2009 and an economy that had shown resilient growth averaging 5% per annum in that period, Sri Lanka is certainly not a novice in managing the expected economic fallout," she said.

“But the extent to which (tourism) will be impacted will depend on how well the government is able to manage the situation and bring a sense of normalcy to the country. In the aftermath of past attacks in tourist destinations such as Bali recovery took about 12 months, after which a considerable and consistent increase in tourist arrivals and earnings was seen in the medium to long term,” said the analyst at Research Frontier.
(COLOMBO, May 08, 2019-SB)

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