Business sentiment picks up as economic activity shows signs of a slight recovery

Sri Lanka recently received its first shipment of 264,000 vaccines of the Oxford-AstraZeneca vaccine as part of the interim allocation of 1.44 million doses to be received from the COVAX Facility in stages until May. This brings the number of doses available to around 1.3 million with nearly a million people receiving their first jab so far.

As economic activity continues to recover against this backdrop, the Central Bank of Sri Lanka notes that the economy is expected to make a notable recovery this year, supported by policy stimulus and improving business sentiment.

It states: “Positive sentiments fuelled by the COVID-19 vaccination drive in the country and the impact of growth promoting policies are expected to support the economic revival over the short to medium term.”

The outcome of the latest LMD-Nielsen Business Confidence Index (BCI) survey – which was carried out in the first week of March – also points to a cautiously growing sense of optimism in the business community as the country looks to return to a semblance of normalcy.

THE INDEX The BCI registered a six point increase to 126 in March, following a decline in February.

This marks the highest point for the barometer of business confidence over the last 12 months and places the index a substantial 20 basis points above the average for this period. And coincidentally, the index is now at its all-time average mark too.

Nielsen’s Director – Consumer Insights Therica Miyanadeniya observes: “Businesses are slowly opening up with some resorting to a hybrid model of working from home (WFH) and office; and life in general is also picking up.”

“New cases of COVID-19 as well as the death rate are also coming down and with the vaccination drive underway, hope is rising once again among the people and businesses,” she adds.

Miyanadeniya continues: “There is also hope that this year, people will be able to celebrate Avurudu and Vesak to some degree after two years of subdued activity or no festivities at all.”

SENSITIVITIES The most pressing issue for businesses continues to be the impact of COVID-19, followed by inflation, as well as bribery and corruption.

As for the nation as a whole, the spread of the coronavirus is highlighted as the main issue.

PROJECTIONS As the vaccination drive continues and the country prepares for the festive season, business confidence seems to be on the rebound. Miyanadeniya says: “With the festive season in April and anticipation of renewed celebrations to evoke blessings for a better 2021, hope is on the rise again.”

Furthermore, she believes that “if the current trend continues with more and more people being vaccinated, and business picking up as well, both the BCI and Consumer Confidence Index will continue to improve.”

In the March edition, we noted that the pace and effectiveness of Sri Lanka’s immunisation programme, and spread of the virus, are likely to drive sentiment in the near term. This may hold true if new COVID-19 cases continue to trend downward and Sri Lanka secures more doses of the vaccine as it looks to reach herd immunity.