Global Economy

Overall, the world economy grew by 3.8% in 2011, marginally lower than the IMF’s September 2011 forecast of 4.40%, with advanced economies realising a 1.6% growth rate. Emerging and developing economies continue to be the world’s economic engine, expanding by approximately 6.42% in 2011.

	2010 %	2011 %
World Output	5.2	3.8
Advanced Economies	3.2	1.6
United States	3.0	1.8
Germany	3.6	3.0
France	1.4	1.6
United Kingdom	2.1	0.9
Emerging & Developing Economies	7.3	6.2
Russia	4.0	4.1
China	10.4	9.2
India	9.9	7.4
Brazil	7.5	2.9
Source: IMF World Economic Outlook update, January 2012

The Global recovery has been challenged by increasing strains in the euro area and the fragilities elsewhere. Global output is expected to record 3.3% in 2012 largely due to expectations of a mild recession in the euro area as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation. Besides, growth in emerging and developing economies is expected to moderate due to a worsening external environment and a weakening of internal demand.

(Source: IMF World Economic Outlook Update, January 2012)

China

China’s economy, the second largest on earth, expanded by approximately 9.2% in 2011, accounting close to 40% of global growth. Although growth is rapidly replacing inflation as Beijing’s main policy concern, recent Chinese data show economic expansion easing as a result of fewer housing sales, lower construction spending and slowing exports, particularly to Europe. Among financial commentators, concerns are mounting that the world’s most populous country is heading for a hard landing, with grave implications for economies around the world.

India

The Governor of the Reserve Bank of India has signalled that Asia’s third-largest economy may not reach the earlier growth estimate of 7.6% for the fiscal year ending March 2012. For reasons not yet fully understood, Foreign Direct Investments into India fell from USD 37.8 Bn. in the year ended March 2010 to USD 25.9 Bn. the following year, marking the first annual decline since 2003 - 2004.

Nevertheless, Asia's importance in the global economy has been steadily rising.

Sri Lankan Economy

GDP

Growth in Sri Lanka’s GDP reached an estimated 8.3% in 2011, topping 8.0% for the second consecutive year. This level of sustained growth is unprecedented in the country’s history. In dollar terms, GDP is estimated to have exceeded USD 59.0 Bn. with a per capita income of USD 2,830.

The industrial sector is estimated to have achieved the highest growth rate across the Sri Lankan economy. The agricultural sector was afflicted by bad weather, especially in the first half of the year. The services sector grew by an estimated 8.6% in 2011, contributing to 58% of the total GDP.

Unemployment

Sri Lanka had a record low unemployment level of 4.3% in the first half of the year, with the 15 - 24 age category seeing an especially sharp decline in unemployment. Reconstruction, infrastructure development and a rise in employment in the micro entrepreneurship category all contributed to the continued creation of employment opportunities. Moreover, a drop in the Poverty Head Count Index points to a significant reduction in poverty levels.

Rate of Inflation

The year on year inflation, as measured by the Colombo Consumer Price Index, was estimated at approximately 4.9% in December 2011. The inflation rate remained steady at mid single-digit levels throughout the year, showing a slight increase in the closing months. Inflation has been kept under control - despite a rise in commodity and food prices in international markets - thanks to improvements in the domestic supply side and food production, especially in the Northern and Eastern Provinces.