SL’s second wave of pandemic to worsen contraction of economy in 2020: ADB

The second wave of the pandemic in Sri Lanka is expected to worsen the contraction of the economy this year, the Asian Development Bank (ADB) warned in its latest outlook.

“In Sri Lanka, economic recovery was under way in Q3, but a rapidly expanding outbreak from early October brought localized lockdowns and restrictions, their economic effects compounded by resurgent outbreaks in Sri Lanka’s main export and tourist markets. These factors are expected to worsen contraction in 2020,” the ADB said in a supplement to its Asian Development Outlook, released Thursday (10)

However, the ADB noted that with improved prospects for India, South Asia’s growth forecast for 2020 is revised up to from 6.8% contraction to 6.1%. Further, the sub regional growth projection for 2021 is revised up slightly from 7.1% to 7.2%.

“Having contracted by 23.9% in Q1 of fiscal year 2020 (FY2020, ending 31 March 2021), the Indian economy began to normalize after containment measures started in ease in June, with economic contraction in Q2 FY2020 narrowing to 7.5%, better than expected,” it said.

“Agriculture, manufacturing, and utilities grew year on year, while a decline in fixed investment improved from 47.1% in Q1 to 7.3%. Net exports contributed 3.4 percentage points to growth in Q2. With the pandemic possibly having peaked in mid-September, many high-frequency indicators are better than a year ago or back to pre-COVID levels, indicating accelerating economic normalization,” it added.

The GDP forecast for FY2020 is upgraded from 9.0% contraction to 8.0%, with GDP in H2 probably restored to its size a year earlier. The growth projection for FY2021 is kept at 8.0%.

“In the rest of South Asia, economic activity started to normalize from Q3 2020, largely in line with Update projections,” it said.

In Afghanistan, agriculture is robust, but the outlook is adversely affected by a new COVID-19 wave and intensified conflict even as peace talks continue.

“Economic activity in Bangladesh has recovered more strongly than expected with both exports and remittances growing in recent months but threatened by external risks as COVID-19 outbreaks renew in major export destinations,” it said.

“In Bhutan, the impact of COVID-19 is now expected to be greater than projected in the Update after a nationwide lockdown in August and September halted all economic activity.”

“Maldives restored more international flights in October, but travel demand remains weak as restrictions are reinstated in major European markets, hampering tourism recovery.”

“Nepal has substantially eased restrictions since September, but a persistent rise in COVID-19 infections is holding back demand, in line with Update projections.”

“Pakistan’s economy is recovering, particularly in manufacturing and construction, supported by government emergency relief,” it added

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