Confusion over the rebasing of GDP

 According to the new GDP series, GDP growth for Q1-2012 and Q2-2012 came in at very high levels of 16.1% and 9.2% respectively, pushing up the overall growth rate for the year to 9.1%. The GDP growth for 2013 slowed down significantly to 3.4% and, 4.5% in 2014. The volatility in the new growth figures have caused confusion and distorted Sri Lanka’s growth projections. While there have come few more clarification from DCS, we need more clarity to correctly estimate GDP growth.

Divergence in the economic story based on the two series: The previous series indicated that the economy was slowing down while the new series indicates that the economy was accelerating in H2-2014. 

Our current forecast is based on the assumption that the new series will replicate the growth trajectory of the old series. But it seems that the new series is projecting a different economic growth trajectory

High volatility in the new series: A look at the Q1 y/y growth data over the last 4 years indicate the huge variances in the new series. It is likely that going ahead we might have a few more quarters of volatile growth in the GDP before it stabilises.

GDP price deflator: This also shows similar variability. While the GDP deflator was under-estimated for  2012; it was over-estimated for 2013 and 2014.

Structure of the economy has changed: In the old series, agricultural, industrial and services activities contributed 13.3%, 32.6% and 54.1% to the GDP at current prices for the first quarter of 2015. The contribution of agricultural and industrial activities decreased to 7.8% and 28.7% respectively and for services activities increased up to 56.5% in the new series representing the trend towards services dominant economy. Historical contributions too have changes with contribution of agriculture going down significantly in the new series.