Business sentiment plunges following the emergence of the third wave of COVID-19

The impact of the third wave of the COVID-19 pandemic on the local economy is expected to be less severe than the previous waves “due to the selective nature of mobility restrictions and the ongoing vaccination drive,” according to the Monetary Board of the Central Bank of Sri Lanka.

To this end, the monetary authority highlighted the need for continued fiscal and monetary support to ensure the recovery isn’t derailed.

Meanwhile, the Central Bank’s accommodative monetary policy stance, rupee liquidity and the introduction of priority sector lending targets are expected to underpin Sri Lanka’s economic recovery by promoting lending to sectors that are in need.

The results of the latest LMD-NielsenIQ Business Confidence Index (BCI) survey – which was carried out in the first week of May – paint a gloomy picture for business with sentiment plummeting following the surge in COVID-19 cases since the end of April.

THE INDEX The BCI plunged by a massive 49 basis points to 89 in May from the previous month to register a five month low. This in effect reverses the moderate gains witnessed for most of the year to date.

This marks the highest fall since April last year when the government imposed an islandwide curfew. It also places the index at the same level it was a year ago and below its average for the last 12 months (110).

It is noteworthy too that in March last year – a few weeks prior to the curfew – the BCI stood at a healthy 145 points, which was some 20 notches above the all-time average.

Nielsen’s Director – Consumer Insights Therica Miyanadeniya puts things in perspective: “Predictions of the possibility of a third wave unfolding after the Avurudu season has become a stark reality. The country is reeling from the effects of unchecked crowds in and around retail outlets… as well as carefree celebrations and fiestas in various parts of the island during the season.”

SENSITIVITIES The most pressing issue for business continues to be the impact of the COVID-19 pandemic, followed by inflation and political instability.

As for the nation, the spread of the virus continues to be perceived as the main issue. The economy and poverty are also considered to be major concerns.

PROJECTIONS In the May edition of LMD, we noted that the rise in COVID-19 cases following the festive period and imposition of new restrictions could undermine sentiment. This has proved to be true.

Miyanadeniya says that “although both indices [the BCI and Consumer Confidence Index (CCI)] are not yet at their all-time lows, if the present trend continues there’s a possibility of this happening.”

On the other hand, the silver lining may lie in Sri Lanka’s ongoing immunisation programme.

The outlook for the BCI will surely hinge on the government’s ability to secure more vaccines, and conduct the islandwide roll out more expeditiously and in double-quick time. As such, the consignments of doses expected soon and success of the immunisation drive may determine the direction of the index in the near term.