Archive for June, 2014

How is Sri Lanka Viewed after Recent Ethnic Clashes?

Shiran Fernano, Economist and Product Head, recently weighed in with LMD on how Sri Lanka could be perceived post-Aluthgama and in light of recent clashes within the country. Check out the video below for his interview.

Skip to interview 

Global Markets in June

(Our monthly ‘best of the Web’ update)

At the start of the month the European Central Bank introduced historical measures to fight deflation, cutting its deposit rate to minus 0.1 percent. Capital inflows to emerging markets continued with the added optimism of monetary easing in Europe.

Global political unrest continued in June as well with violence erupting in Iraq and Pakistan. Intensifying militant attacks in Iraq have raised concerns over rising crude prices. India in particular, with its high dependence on crude imports, is expected to be affected adversely as oil prices continue to rise in the wake of ongoing Iraq violence. Meanwhile in Pakistan, the Taliban carried out a deadly attack on the country’s international airport in Karachi.

Argentina‘s government agreed to negotiate with its holdout creditors after US Supreme Court declined to hear an appeal by Argentina to overturn a lower court ruling forcing it to pay all holders of its defaulted debt. Kenya issued its first-ever international bond attracting over $8 billion, making it the largest-ever debt sale by an African country.

If GDP is High, Why are Corporate Earnings Low?

We recently released a report entitled: The Other GDP; Demystifying the Disappointing Business Conditions in 2013 to our clients which sparked a lot of interest. Our CEO, Amal Sanderatne, was at a recent forum to discuss this further. The LBO article beow neatly captures his thoughts on why, despite Sri Lankan businesses experiencing downturns the country’s GDP growth appears high. Key excerpts:

Amal Sanderatne, head of Frontier Research, an economics consultancy said their clients are asking why demand is weak when Sri Lanka registered the second highest economic growth numbers in Asia at 7.3 percent last year.

“You see this in a lot of listed corporates that are servicing the domestic consumer, you know that profits are down, non performing loans are rising.

“So there is this big divergence between what you see in GDP growth and what people experience in actual business conditions generally.”

Sanderatne said the divergence between actual business conditions and GDP numbers also support the belief that GDP is manipulated.

 He said what is happening could be explained in terms of available numbers, leaving aside the question of GDP being manipulated.

In 2013 private real consumption growth was only 3.2 percent, according to official data, with economic growth at 7.3 percent, lower than the 5.5 percent growth seen in 2012 when the real economic growth was 6.3 percent.

Sanderatne said it was weakest private consumption growth seen since 2001 when the economy contracted 1.5 percent and real private consumption rose 0.2 percent.

GDP growth can be high, if government spending is high, and there is a pick-up in exports or a narrowing of the trade deficit.

Sanderatne said usually GDP growth and domestic consumption move in tandem and but in 2013 they moved in opposite directions.

This could be explained by the strong pick up in exports from the second half of the year.

Read the full article here