CONFIDENCE RALLIES IMPENETRABLY!

The barometer of business confidence rebounds sharply despite the state of play!

The month of May proved to be eventful both locally and globally, with unnerving political, economic and social developments shaping the national narrative.

Following a seven year hiatus, Sri Lanka held local government (LG) elections with the ruling National People’s Party (NPP) gaining a simple majority, albeit with a notable decline in both its count and share of votes compared to the November general election.

On the brighter side of the confidence ledger and economic front, the Central Bank of Sri Lanka launched its Sustainable Finance Roadmap 2.0 with Governor Dr. Nandalal Weerasinghe describing it as a crucial step towards building a resilient and inclusive financial system, amid escalating climate and social risks.

Adding to the momentum, the World Bank Group unveiled a major initiative to support job creation and accelerate private sector growth in Sri Lanka, backed by over US$ 1 billion in financing over the next three years.

And on the world stage, the US and China reached a temporary truce, slashing their respective tariffs by 115 percent for 90 days to ease market fears of a global recession.

THE INDEX The LMD-PEPPERCUBE Business Confidence Index (BCI) bounced back in May, to nearly where it stood two months ago; it climbed by 24 basis points to reach 196 – up from 172 in April – purportedly buoyed by the conclusion of LG elections.

This marks a recovery from April’s free fall, following the index’s all-time equalling high of 204 in February and a strong showing in March (197).

Despite recent fluctuations however, the BCI remains firmly above key benchmarks – e.g. at a healthy 72 points above its all-time median of 124 and 44 points higher than the 12 month average (152).

For context, the index languished at 99 in the corresponding month last year.

According to PepperCube Consultants, the surge in confidence “reflects a modest rebound in business sentiment, driven primarily by a decline in negative outlooks and rising positivity.”

However, it cautions that underlying uncertainties continue to cast a shadow over sustained confidence.

PROJECTIONS For all intents and purposes, the latest spike in the index comes as a surprise – we are inclined to go as far as to say that a turnaround of this magnitude is inexplicable, given the backdrop of issues and risks facing the nation at this time.

Our ‘watch list’ is long!

On the external front, the pauses on tariffs imposed by the Trump administration will end soon, so the outcomes of cross-country talks and negotiations will make or break the unfolding world economic order.

Here at home, signs of political instability following the LG elections, increasing lawlessness, the prospect of an electricity price hike and its implications for the cost of doing business, not to mention the government’s ability to sustain the IMF’s lifeline, are at the top of a long list of concerns.

Which is why the trajectory of the BCI hangs in the balance – much like the nation’s future!

– LMD