- Vaccination drive to lead real sector recovery
ICRA Lanka in its monthly economic update for the month of June noted that the current vaccination drive is likely to speed up the recovery in the real sector. Therefore, higher economic activity levels are expected for July/August.
“The vaccination rollout is likely to give a boost to the business sentiment and the consumer confidence and hence, private credit in July may expand slightly faster on a month-on-month basis than in June,” ICRA noted.
However, it added that falling prices of Sri Lanka’s key export commodities and increasing industrial input prices will continue to pose a significant challenge to the external sector.
In terms of inflation, ICRA noted that they expect moderate levels of inflation in July as well with the increase in fuel prices working its way into more sectors of the economy.
Headline inflation increased to 5.2% in June, the biggest jump since the beginning of the pandemic last year. The increase is due to the hike in fuel prices which has caused a broad-based increase in prices of both food and non-food items.
The performance of the Colombo Stock Exchange (CSE) was mixed in general during the month of June as the market closed with a 5.87% gain in the ASPI and a 0.35% loss in the S&P SL20. Foreign investors were net sellers. However, the overall net outflow decreased substantially to Rs. 1.16 billion from R 3.8 billion. The majority of Global Industry Classification Standard (GICS) sectors were able to record gains with the best-performing sectors being transportation and diversified financials. Overall price-to-book value (PBV) decreased from 1.14 to 1.12 favouring buyers.
US stock markets remained upbeat regardless of rising inflation and the Fed being more “hawkish” on inflation. While the majority of the sectors experienced gains in June, anticipation regarding second quarter corporate earnings is expected to drive prices further up. European markets edged higher with France, Germany, and the UK being the top performers.
Prices in the Colombo auction remained flat in June. Global rubber prices lost momentum largely due to lack of demand from India and China which are the largest consumers. However, demand is expected to pick up in the upcoming months as global economies return to normalcy.