Sri Lanka Economy Expands 4.2% in Second Quarter as Industry Leads Recovery

September 15, Colombo (LNW): Sri Lanka’s economic recovery maintained momentum in the second quarter of 2026, with gross domestic product expanding by 4.2 per cent despite a downturn in agricultural output and a moderation in services growth, official figures show.

Data released by the Department of Census and Statistics (DCS) put real GDP at Rs. 3.03 trillion for the April-to-June period, compared with Rs. 2.91 trillion during the corresponding quarter a year earlier, based on constant 2015 prices.

Measured at current market prices, GDP increased by 11.3 per cent to Rs. 8.25 trillion, up from Rs. 7.41 trillion in the second quarter of 2025.

Industry was the strongest contributor to the expansion, recording 7.3 per cent growth compared with 5.7 per cent a year earlier. Construction and mining were particularly prominent, with output in the two areas rising by 13.9 per cent and 17.4 per cent respectively.

Manufacturing also remained on a growth trajectory, expanding by 3.2 per cent. The increase was supported by stronger production of timber-related goods, non-metallic mineral products, furniture, machinery and equipment, as well as basic and fabricated metal products.

Not all manufacturing segments performed equally well, however. Output declined in industries producing coke and refined petroleum products, rubber and plastic goods, and textiles, clothing, leather and associated products.

Services continued to make up the largest component of the economy, but growth eased to 2.7 per cent from 4.0 per cent in the same period last year.

Information technology-related activities led the services sector with a 10 per cent expansion. Financial services grew by 7.7 per cent, while insurance increased by 8 per cent and telecommunications recorded 4.8 per cent growth.

Transport and warehousing activity rose by 3.1 per cent, while accommodation, food and beverage services expanded by 2.9 per cent. Public administration and defence was the notable exception, contracting by 2.4 per cent.

Agriculture presented the biggest drag on overall growth, shrinking by 2.3 per cent after recording 2.5 per cent growth during the second quarter of 2025.

The DCS linked much of the decline to substantial reductions in freshwater fishing and aquaculture, rice production, sugar cane and tobacco cultivation, marine fishing and aquaculture, and plant propagation.

Freshwater fishing and aquaculture suffered the sharpest fall, plunging by 61 per cent. Rice production dropped by 15.1 per cent, while sugar cane and tobacco cultivation declined by 14.7 per cent.

Some agricultural activities provided a partial counterbalance, with forestry and logging, spices, oil-bearing fruits, cereals, fruit cultivation and animal production registering growth.

The latest figures come against a backdrop of continued uncertainty in the international economy. The DCS noted that heightened tensions in the Middle East and concerns over global crude oil supplies created additional risks during the quarter, while softer tourism activity also weighed on the economy.

At the same time, stronger imports helped manufacturers secure raw materials and machinery, supporting industrial activity. Higher import volumes also generated additional government revenue through taxes levied on imports.

Greater availability of construction materials was another factor behind the strong performance of the building sector, with the increased demand for materials also supporting mining and quarrying activity.

Services remained the dominant part of the economy during the quarter, accounting for 52.7 per cent of GDP. Industry contributed 25.9 per cent, while agriculture represented 8.4 per cent. Taxes less subsidies on products made up the remaining 13 per cent.

The DCS said the reported 4.2 per cent expansion represents the year-on-year change in real GDP between the second quarters of 2025 and 2026, pointing to continued overall economic growth despite significant differences in performance across the major sectors.

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