Sri Lanka’s Economic Outlook | Sri Lanka’s economy is showing signs of steady recovery after years of turbulence. Recent data from the Department of Census and Statistics (DCS) and the Central Bank of Sri Lanka (CBSL) reveal a positive growth trajectory across consecutive quarters. This momentum is being closely watched by investors, policymakers and business leaders eager to gauge the nation’s economic stability.
This analysis looks at the country’s quarterly GDP growth, sector performance and forecasts by key international institutions to help businesses and entrepreneurs understand what lies ahead.
Quarterly GDP Performance
Q1 2025: GDP expanded by 4.8% year-on-year. Industry grew by 9.7%, services by 2.8%, while agriculture contracted slightly by 0.7%. The rebound in industry, driven by construction and manufacturing, offset weaknesses in agriculture.
Q2 2025: The upward trend continued with 4.9% year-on-year growth. This marks the fourth consecutive quarter of growth above 4%, consolidating Sri Lanka’s economic turnaround.
2024 Recap:
- Q4 2024 recorded about 5.3% growth.
- Q3 2024 reached approximately 5.5%.
- Q2 2024 stood at 4.7%, and Q1 2024 at 5.1%.
These figures show that the economy has sustained growth for more than a year, a notable improvement from the contraction experienced during the 2022 crisis period.
Sector Insights
- Industry: The main engine of growth. Construction, manufacturing and related services recorded near double-digit gains. The government’s infrastructure projects and private sector investments have created a ripple effect through employment and supply chains.
- Services: A steady contributor, with tourism recovery boosting hospitality and transport. The expansion in IT and financial services continues, though at a slower pace than industry.
- Agriculture: Remains vulnerable. Erratic weather patterns and rising input costs have kept growth negative or stagnant in several quarters.
Read more on Sri Lanka’s Economic Outlook – “Investor Confidence Returns: How Market Sentiment Signals Sri Lanka’s Economic Revival“
Drivers of Growth
- Monetary Stability: CBSL’s policies to curb inflation and maintain a stable currency have encouraged investment.
- Tourism Rebound: Visitor arrivals and earnings are recovering, adding foreign exchange inflows.
- Infrastructure Spending: Major projects such as expressways and port upgrades are creating both short-term employment and long-term productivity gains.
Forecasts for 2025 and Beyond
- Central Bank of Sri Lanka: Projects full-year growth of around 4.5% for 2025.
- Asian Development Bank: Estimates 3.9% growth in 2025 and 3.4% in 2026, citing structural reforms and global headwinds.
- World Bank: Expects about 3.5% growth in 2025, slightly more conservative, highlighting the need for continued fiscal discipline.
Despite differing figures, all major institutions agree that Sri Lanka will maintain positive momentum, with growth staying well above the lows of the recent economic crisis.
Risks to Watch
- Global Slowdowns: Weaker global demand could dampen exports.
- Agricultural Uncertainty: Climate-related disruptions remain a threat to food supply and rural incomes.
- Debt and Reforms: Ongoing debt restructuring and the success of fiscal reforms will influence investor confidence.
Opportunities for Business
- Export Industries: Garments, IT and agricultural value addition can benefit from stable exchange rates.
- Tourism & Hospitality: Rising arrivals create opportunities in hotels, restaurants and transport services.
- Infrastructure and Construction: Public and private projects will require contractors, suppliers and skilled labour.
Conclusion
Sri Lanka’s GDP growth is holding above 4% for consecutive quarters, with industry taking the lead and services providing stable support. Forecasts from CBSL, ADB and the World Bank suggest growth between 3.5% and 4.5% in 2025. While challenges remain especially in agriculture and debt management the overall economic outlook signals cautious optimism.
For investors and entrepreneurs, the coming year presents opportunities across export markets, tourism and infrastructure. Maintaining fiscal discipline and executing reforms will be critical to ensure that these gains become sustainable long-term growth.
Check more about Sri Lanka’s Economic Outlook 2025 – “Fitch Upgrades Growth Outlook – What It Means for Sri Lanka“
