| The Sunday Times Economic Analysis By the Economist | ||||||
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Good signs and bad omens There could be no better sign of an economic recovery than the significant export surge in August. Given the bleak export performance in the first half of the year, the significant rise in exports in August gives considerable hope for an economic recovery and rapid growth. There are however
other omens of possible setbacks to economic performance. These
are the global developments of impending war and on our own soil
on the peace and political front. For the first
time this year, there was an improvement in export performance in
July, when exports grew by 2 percentage points. This improvement
gained momentum in August when total exports rose sharply to US$
568 million. This was an increase of US$ 138 million over that of
July. Particularly encouraging was the growth in industrial exports.
Textile and garments exports jumped to US$ 339 the highest earnings
since December 2001. Other industrial
exports too registered significant gains. There is other evidence
of an industrial recovery as well. Intermediate or raw material
imports, that declined by as much as 6 per cent in the first half
of the year has picked up. In August intermediate imports were 6
per cent higher than in the corresponding month of last year. Intermediate
imports of US$ 458 in August is also much higher than the average
intermediate imports of US $ 283 million in the first six months
of the year. This is an
early indicator of growth in industrial exports. These figures indicate
that there are further prospects for industrial exports and that
the declining trend in industrial production may be reversed. These
improvements are significant not only because industrial exports
constitute by far the larger share of export earnings, but also
because there were concerns and anxieties that the country was losing
its competitive edge on international markets. We are not suggesting
that the concern with "industrial sickness" is no longer
valid. In fact the improvement in industrial exports should not
blind us to the reality of underlying weaknesses in our industrial
sector. Unless the
factors that have increased our cost structures are addressed we
could have serious problems in the future. There are other signs
of economic revival. The August tourist statistics also show a distinct
improvement in tourist arrivals and earnings from tourism. At the
end of the eight-month period the decrease in tourism was reduced.
This increase in tourist arrivals once again ushered hope of further
increases in the coming months that marks the tourist season. However there
are bad omens as well. The export industrial sector is likely to
be affected by international developments, as its fortunes are mainly
dependent on global conditions. There is uncertainty globally owing
to the prospect of an American war in the Middle East. This could
affect the demand for our industrial goods, as well as disrupt trade
flows. The massive
bomb blast in Bali targeted at tourists would reduce international
tourism. The unrest in the East of our own island could be a further
setback to tourism. The renewed unrest in the East is a definite
setback to overall economic growth. If these factors continue, the
trend of increased tourist traffic is likely to be once again reversed
and the initial expectation that once again tourists would cross
the 400,000 mark may not be realised. The expectation that the tourist
industry is on the threshold of a boom may be unrealistic in the
light of these developments. The recent events in the East have
a far more significant impact on the economic growth process. There is a
growing scepticism about the peaceful intentions of the LTTE. The
opposition parties are seizing this scepticism to generate an opposition
to the peace negotiations. This in turn adds further doubts about
the durability of the current cessation of hostilities. Such an
uncertain climate is not conducive to inflows of foreign aid for
reconstruction, foreign investment or even local investment. Unfortunately
the many signs for peace that were generated after the talks in
Thailand have had a serious set back. A new effort on the part of
the LTTE to rebuild confidence in their genuine intentions for peace
would be vital if the economy is to grow in a global environment
that is also unstable. |
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