Sri Lanka economy surges eight percent on year

COLOMBO, December 16, 2010 – Sri Lanka’s post-war economy expanded by eight percent for the three months to September, official data showed Thursday, with analysts warning the rapid growth could stoke inflation.

The tropical island economy has grown at a blistering pace since government troops in May 2009 ended a 37-year ethnic conflict with Tamil Tiger rebels that the United Nations estimates left over 100,000 people dead.

The quarterly growth rate, which was slightly ahead of market expectations, was up sharply from the 4.2 percent expansion logged in the same three-month period a year earlier, the statistics department said.

The strong quarterly performance was powered by industry, which grew 8.8 percent, services, which expanded 8.0 percent, and agriculture, which logged six percent growth.

The Central Bank forecast earlier in the month that Sri Lanka’s 42-billion-dollar economy would post eight percent growth this year and about nine percent in 2011. The economy expanded by 3.5 percent in 2009.

“The third-quarter growth numbers are not a surprise given the rapid economic recovery after the war,” said Dimantha Mathews, research analyst at Capital Alliance Securities.

“Consumer spending is also growing at a faster pace, and the central bank may have to take steps to tighten monetary policy to prevent inflation from hitting double digits,” Mathews told AFP.

Sri Lanka’s inflation rate is running at seven percent.

The central bank said this week it will take steps to halt a “build-up of demand pressures” after opting to leave interest rates on hold for a fourth consecutive month. But it did not elaborate.

Sri Lanka has cut lending rates and taxes, and eased foreign exchange rules to spur growth.

This has lifted the benchmark index of the tiny Colombo Stock Exchange by 90 percent this year, making it one of the best performing markets in the region.

On Tuesday, the International Monetary Fund said Sri Lanka’s economy remains “strong,” forecasting growth of 7.5 percent in 2010.