Standard Chartered’s growth forecast for Q1 of 2026 is lower than previously expected at 3.5%, owing to the uncertainty of the impact of Cyclone Ditwah on Q4 2025 growth, and the ability for reconstruction efforts to take place at a faster pace, Standard Chartered Bank Economist-South Asia Saurav Anand said, during the Standard Chartered Global Media Briefing held in Colombo yesterday (20).
“Our growth forecast this year is 3.5%. Now, ideally we would have kept it around 4%, slightly on the lower side because of the uncertain impact of the cyclone. We are yet to see how much it impacts GDP in the first quarter. The first quarter data is likely to be released somewhere around June,” Anand said.
He added that the lack of enough insight into the scope of the economic fallout is what had lowered expectations that would otherwise have been robust. “That’s clearly something we are watching out for, otherwise broadly the economic outlook remains robust.”
Referring to unreleased data on GDP performance in December, Anand said that 2025’s headline growth is likely to be impacted by the damages that had been borne by the economy. “There is a bit of uncertainty about the impact of the cyclone, in terms of how it will impact growth in Q4, in the month of December, and also in the month of January, when we are still rebuilding. There has been damage and that could have an impact on the headline growth. That is what is pulling down the full year number.”
Accordingly, he said that both the World Bank and IMF have stated that damages are close to 4% of GDP, which had also been estimated to be between 5% and 2.5% of GDP. “The estimate is pretty wide, that would have an impact on the headline number. That’s why we have kept it lower; there is a risk, or there is an upside risk to it if damage is lower, or if the reconstruction activity is faster. We could see growth coming closer to 4% rather than 3.5%.”
Anand further said that investment-driven consumption is to return this year, as it had been recovering in 2025, though it remains lower than the levels of 2018. He further added that the Government’s increased capital expenditure for the year in reconstruction efforts is to further bolster this drive.
“One of the things we have been saying is that consumption looks good, given that last year we have seen a pickup in overall consumption growth driven by the moderation in interest rates.”
“We have seen very muted investments in the last three-four years; there is a lot of room to catch up, so there is this statistical effect, which is going to come into play. While the headline economy, in terms of linear output in 2026, is still back to 2018 levels, 2025 is still 60% of 2018 levels.”
“There has been a lack of investments in the economy between 2019 to 2023; 2024 has shown some signs of picking up in 2025. With hopefully Government capex coming back on track, investment growth is obviously likely to be supported.”
“Overall consumption and investment growth should support growth closer to 4%; risk is closer to 3.5% to 4%, unless we had a larger impact because of the cyclone in terms of overall economic output.”
Standard Chartered ASEAN and South Asia FX Research Head Divya Devesh noted that Sri Lankan Rupee is to largely remain stable in 2026.