The document provides a summary of economic and business news from Sri Lanka and globally. Some key points include: Sri Lanka's GDP growth slowed to 1.6% in Q2 2019, its lowest in over 5 years; Commercial Bank of Sri Lanka won several awards for its digital initiatives; the tallest tower in South Asia was opened in Colombo; and the OECD cut its global growth outlook amid the US-China trade war. International tourism arrivals grew 4% in the first half of 2019 led by Asia and the Middle East.

1. Economic Capsule
September 2019
273rd Issue
Research & Development Unit

2. C O N T E N T S
BANKING & FINANCE
 ComBank shines at first ‘Asian Banker Sri Lanka Awards’ with 4 wins
ECONOMY & BUSINESS
 Sri Lanka’s second quarter GDP growth on a 5-year low
 Provincial Gross Domestic Product – 2018
 Tallest tower in South Asia opens
 Sri Lanka plans USD 250mn tea-for-debt barter deal with Iran
 Indian firms eye Sri Lanka projects using buyer’s credit
 Sri Lanka, Pakistan face external risks amid US, China trade war: Moody’s
 Hambantota International Port ties the knot with Ranong Port, Thailand
 Tariffs push some US firms to exit China for Sri Lanka, Bangladesh
 Sri Lanka vehicle imports – August 2019
INTERNATIONAL
 A quick guide to the US-China trade war
 OECD cuts growth outlook to post-crisis low
 Global tourism sees arrivals up 4% in H1 2019
 India cuts corporate taxes to boost manufacturing and revive growth
 Draghi’s highway to inflation goal risks ending in taper tantrum
 Thomas Cook collapses, leaving hundreds of thousands stranded

3. Banking &
Finance

4. ComBank shines at first ‘Asian Banker
Sri Lanka Awards’ with 4 wins
Research & Development Unit
Commercial Bank won four awards at the first
ever ‘Asian Banker Sri Lanka Awards’ ceremony
that recognized Sri Lankan banks and financial
institutions that have excelled in retail banking
and technology.
The quartet of awards won by the Bank were:
 ‘Best Productivity, Efficiency and Automation Initiative Application and Programme’ for its account
opening process automation via a core banking system
 ‘Remittance Product of the Year’ for its Remittance Card
 ‘Automobile Lending Product of the Year’ for its top-up
lease facility
 ‘Best Frictionless Credit Evaluation Initiative, Application or Programme’ for its personal loan request
facility via the Online Banking Platform
Research & Development Unit

5. Economy &
Business

6. Sri Lanka’s second quarter GDP
growth on a 5-year low
Research & Development Unit
Sri Lanka’s economy grew at
its slowest pace in more than
five years in the second
quarter of 2019.
The economy grew at 1.6%
(YoY) in the second quarter of
2019, slowing from a growth
rate of 3.7% (YoY) in the
previous quarter and
recording its slowest pace
since the first quarter of 2014.
Source: Department of Census Statistics
Cont.

7. Sri Lanka’s second quarter GDP growth
on a 5-year low (cont.)
Research & Development Unit
The service sector recorded a growth of 1.6% (YoY) in the second quarter of
2019 which was the lowest ever growth rate since 2010.
The highest impacts were observed on 'Accommodation, and food &
beverage service activities' along with 'Transportation of goods and
passengers including warehousing'.
The industrial sector grew by 1.4% (YoY), while agriculture grew 1.0% (YoY) in
the same quarter. In the first half of 2019, GDP was estimated to have grown
by 2.6 % (YoY)

8. Provincial Gross Domestic Product - 2018
Research & Development Unit
Western province continued to be the largest contributor to the economy followed
by Central and North Western provinces

9. Tallest tower in South Asia opens
Research & Development Unit
Lotus Tower Colombo, the tallest tower in the South
Asian region was declared open on September 16.
The 350 mn tall Lotus Tower has been constructed
at a cost of USD 104.3 mn will consist of a
telecommunication museum, restaurant,
supermarkets, food courts, conference halls, a
1,000-seat auditorium, luxury hotel rooms,
ballrooms and an observation gallery.

10. Sri Lanka plans USD 250mn
tea-for-debt barter deal with Iran
Research & Development Unit
Sri Lanka is moving ahead to strike a USD 250 mn worth
tea-for-debt barter deal and revive tea exports to Iran
while settling outstanding oil credit over a 50-month
period, subsequent to securing Cabinet approval.
Sri Lanka was unable to settle USD 250 mn worth debt
to Iran dating back to 2012, as United States (US)
imposed sanctions on Iran in 2016.
Ceylon Petroleum Cooperation (CPC) would release USD 5 mn per month to tea
exporters in Sri Lanka under the proposed barter deal.
As the barter system doesn’t involve dollar transactions, it will not break or clout the
sanctions according to Petroleum Resources Development Minister, Kabir Hashim.

11. Indian firms eye Sri Lanka projects
using buyer’s credit
Research & Development Unit
Indian companies want to invest in Sri Lanka using buyer’s credit facilities from
Indian Exim Bank where Sri Lankan firms can provide labour and up to a quarter
of material, an official from a visiting business has said.
“Sri Lanka is becoming a preferred destination for Indian investors due to its
similar climate and close proximity to India,” said Praful Kumar Mutha, director of
Mohan Mutha Exports Ltd, Chennai, who was leading a Confederation of Indian
Industry (CII) delegation to Sri Lanka.
“We are interested in securing large scale projects in Sri Lanka such as refineries, IT
parks, desalinisation plants, pharmaceutical zones, container terminals and
vocational training facilities,” Mr Kumar said.
- Economynext

12. Sri Lanka, Pakistan face external risks
amid US, China trade war: Moody’s
Research & Development Unit
Sri Lanka and Pakistan are among Asian countries
that face the highest risks of rising debt costs and
depreciation as global growth slows due to a
trade war between the US and China, Moody’s,
rating agency said.
Emerging and frontier markets with ‘B’ ratings
faced risks.
“Weak debt affordability, high debt burdens, a
reliance on FC borrowing, and thin reserves
coverage of external debt payments make these
sovereigns’ credit profiles exposed to a shift in
financing conditions,” the rating agency said.
“In terms of debt affordability, Sri Lanka, Pakistan, Egypt, Angola, and Ghana would see the most significant
deterioration in their interest payments-to-revenue ratios compared to our baseline 2019-20 forecasts,” according
to Moody’s.

13. Hambantota International Port ties
the knot with Ranong Port, Thailand
Research & Development Unit
The Hambantota International Port Group (HIPG) signed
an agreement for port-to-port cooperation with the
Ranong Port in Thailand. The partnership is a bid to build
synergies between these two maritime locations.
Thailand is currently following a policy to boost trade
with India, Bangladesh, and Sri Lanka under the
framework of the Bay of Bengal Initiative for Multi-
Sectoral Technical and Economic Cooperation (BIMSTEC)
The first phase of the agreement, with Ranong Port and HIPG would be to exchange information and have cooperation in port
management, operations, information technology, communication, port connectivity, port-related industries, and investment promotion in
order to enhance the development of the two ports.
The possibilities of introducing coastal shipping between Ranong Port, and Hambantota International Port, with a view to promoting
bilateral trade, investment, and maritime transport logistics would be considered in the next steps.

14. Tariffs push some US firms to exit
China for Sri Lanka, Bangladesh
Research & Development Unit
As fresh US tariffs on Chinese imports kick in, some US
companies have been urgently moving production to
other Asian countries despite the cost, inconvenience and
deep uncertainty.
Ben Buttolph, chief finance officer at Xentris Wireless (A
leading innovator of premium quality wireless accessories
and charging solutions), expects that his company will
never return to China after completing a move that he
describes as “a kind of business ‘head trauma’.”
It’s a huge inconvenience, it’s a huge expense,” he told
after Xentris set up in the Philippines, Taiwan and
Vietnam since the trade war between the US and China
erupted 18 months ago.
Cont..

15. Tariffs push some US firms to exit China
for Sri Lanka, Bangladesh (cont.)
Research & Development Unit
Richard Roberts, import logistics manager at California-based PacSun, a lifestyle clothing
company, echoed the sentiment that production must move out of China — even in the face of
weaknesses in nations that offer a cheaper alternative.
“The latest round of tariffs is making it almost impossible to import from China,” said Roberts.
“This calendar year we are planning to move up to 30 % of what we produce in China to Sri
Lanka, Bangladesh and Pakistan,” he said.
PacSun, which has 10,000 employees, imports about 900 20-foot containers a year, most of it
from China.
Source: AFP

16. Sri Lanka vehicle imports – August 2019
Research & Development Unit
Total motor car registrations recorded 2,385 units in August down from 2,584 units in
July and significantly down from 7,003 units 12 months ago.
Brand new cars recorded 361 units in August up from 299 units in July and
significantly down from 890 units 12 months ago.
Small cars (engine < 1,000cc) accounted for 88% of brand new car volumes.
Maruti/Suzuki was the market leader accounting for 164 units of which Wagon Rs
accounted for 63 units.
Source: JB Securities

17. International

18. Research & Development Unit
The US and China are locked in a bitter trade battle
Over the past year, the world's two largest economies have
imposed tariffs on billions of dollars worth of one another's
goods.
US President Donald Trump has long accused China of unfair
trading practices and intellectual property theft.
In China, there is a perception that the US is trying to curb its
rise.
Negotiations are ongoing but have proven difficult. The two
sides remain far apart on issues including how to roll back
tariffs and enforce a deal.
The uncertainty is hurting businesses and weighing on the
global economy.
A quick guide to the US-China
trade war
Source: BBC

19. Research & Development Unit
What's next?
Both sides have threatened to take more action with new tariffs and hikes to existing duties in the
coming months.
On 1 October,
The US plans to raise an existing 25% tariff on some Chinese products to 30%,
Washington then plans to deliver a wave of new tariffs on Chinese goods ranging from footwear to
telephones, on 15 December.
If this happens, effectively all Chinese goods imported to the US will be subject to tariffs. China also
plans to hit another 3,000 American products with tariffs by the end of the year.
A quick guide to the US-China
trade war (cont.)
Source: BBC

20. Research & Development Unit
OECD cuts growth outlook to
post-crisis low
The trade war between the US and China has plunged global growth to its lowest levels in a
decade, the OECD said last week as it slashed its forecasts.
The Organization for Economic Cooperation and Development said that the global economy
risked entering a new, lasting low-growth phase if governments continued to dither over
how to respond.
The global economy will see its weakest growth since the 2008-2009 financial crisis this year,
slowing from 3.6% last year to 2.9% this year before a predicted 3.0% in 2020, the OECD said.
The Paris-based policy forum said the outlook had taken a turn for the worse since it last
updated its forecasts in May, when it estimated the global economy would grow 3.2% this
year and 3.4% in 2020.
Source: Reuters

21. Global tourism sees arrivals up 4%
in H1 2019
Research & Development Unit
According to the latest UNWTO World Tourism
Barometer, international tourist arrivals grew 4%
from January to June 2019 when compared to the
corresponding period last year.
Growth was led by the Middle East (+8%) and Asia
and the Pacific (+6%). International arrivals in
Europe grew 4%, while Africa (+3%) and the
Americas (+2%) enjoyed more moderate growth.
Source: Reuters
Destinations worldwide received 671 mn international tourist arrivals between
January and June 2019, almost 30 mn more than in H1 2018 and a continuation of
the growth recorded last year.

22. India cuts corporate taxes to boost
manufacturing and revive growth
The new corporate tax rate for domestic companies, excluding surcharges, makes India more
competitive than neighbouring Bangladesh and puts it almost on par with Vietnam and
Thailand, countries that have wooed businesses affected by the US-China trade dispute.
India cut corporate tax rates on 20th September in a surprise move
designed to woo manufacturers, revive private investment and lift
growth from a six-year low that has led to major job losses and fuelled
discontent in the countryside.
The cut in the headline corporate tax rate to 22% from 30% was widely
cheered by Indian equity markets. The benchmark index posted its
biggest intraday gain in more than a decade to end more than 5% higher.
Source: Reuters
Research & Development Unit

23. Research & Development Unit
The European Central Bank’s new message on how long it’ll keep
interest rates low is supportive for the economy and risky for
markets.
President Mario Draghi raised the bar for any future policy
tightening with a pledge that a new round of **quantitative easing
will end only “shortly before” key interest rates rise.
That commitment was meant to reassure investors that the
stimulus will continue until inflation is solidly back in line with the
goal of just under 2%.
In a contentious decision at Draghi’s penultimate policy meeting,
the ECB decided to restart asset purchases, cut interest rates to
minus 0.5% and ease the terms of its program of long-term loans
Draghi’s highway to inflation goal
risks ending in *taper tantrum
Source: Bloomberg
*Tapering - Tapering is the gradual reversal of a quantitative easing policy implemented by a central bank to stimulate economic growth.
** Quantitative Easing - Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities
from the market in order to increase the money supply and encourage lending and investment.

24. Research & Development Unit
The world’s oldest travel firm Thomas Cook collapsed on
23rd September, stranding more than half a million holidaymakers
around the globe and sparking the largest peacetime repatriation
effort in British history.
The liquidation marks the end of a British company that started in
1841 running local rail excursions before pioneering the package
holiday and growing into one of the world’s largest tour operators.
It ran hotels, resorts and airlines for 19 million people a year in 16
countries. Employing 21,000, it currently has 600,000 people abroad,
forcing governments and insurance companies to coordinate a huge
rescue operation.
Thomas Cook collapses, leaving
hundreds of thousands stranded
Source: Reuters

25. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC
The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information,
it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence
of using such information for whatever purpose.
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