Sri Lanka posts 4.2% YoY growth in Q2 amid Iran war‑driven inflation
Sri Lanka’s economy expanded 4.2% YoY in the April‑June quarter, driven by gains in agriculture, industry and services, while higher oil prices linked to the Iran conflict raise inflation and could temper growth later in the year.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Positive · Buy bias
Sri Lanka's growth data has limited direct effect on PSX sectors; watch for regional oil price trends.
Sectors & Direction
Desk read
Desk call: Buy bias · Positively affected
- EconomyPositively affected
Companies
Companies Mentioned
- INDU· Positively affected · Buy bias
Mentions in This Briefing
Sectors: Economy — Positive · Buy bias. PSX tickers: INDU. Sri Lanka's growth data has limited direct effect on PSX sectors; watch for regional oil price trends.
Full Story
Open on Business Recorder## Economic Growth in Q2 2024
Sri Lanka’s Department of Census and Statistics reported that the island’s GDP grew 4.2% year‑on‑year from April to June 2024, despite inflation reaching a three‑year high due to the spill‑over effects of the Iran‑US conflict.
## Sector‑wise Performance
- Agriculture: Output rose 2.3% YoY. - Industry: Expanded strongly at 7.3% YoY. - Services: Grew 2.7% YoY.
The economy had previously recorded a 5.1% expansion in the January‑March quarter, matching market expectations.
## Outlook and Risks
Analysts expect growth to moderate to a 3‑4% pace in the second half of 2024, with full‑year growth projected around 3.5‑4%. Ranjan Ranatunga, Vice President of Research at First Capital Holdings, noted that while oil prices are expected to settle around $80‑$90 per barrel, higher fuel costs could curb consumer spending and slow growth.
## IMF Support and Monetary Policy
Sri Lanka continues to rely on a $2.9 billion IMF programme that helped stabilize its foreign‑exchange reserves after a severe crisis. An IMF review team is in the country for the seventh programme assessment, which could release an additional $330 million.
The Central Bank raised its policy rate by 100 basis points in May to combat inflation, which surged to 8% in August from 2.2% in March. Fuel price hikes of about 35% since March and further increases expected later this month add to inflationary pressure.
## Currency Depreciation
The Sri Lankan rupee has weakened by 5.7% against the US dollar this year, reflecting the combined impact of higher import bills for fuel and broader external vulnerabilities.
## Implications for Pakistan
While Sri Lanka’s growth figures do not directly affect Pakistani listed companies, the broader regional inflationary pressure from higher oil prices and the Iran conflict could influence Pakistan’s own import‑dependent energy costs and currency dynamics.