Sri Lanka GDP Growth Eases to 4.2% in Q2 2026

Sri Lanka’s economy expanded by 4.2% year-on-year in the second quarter of 2026, slowing from 5.1% growth in the previous quarter. Given the country’s heavy reliance on imported fuel, a fuel rationing was implemented in March, dampening growth. Activity in agriculture declined 2.3%, reversing a 1.1% gain in the first quarter, reflecting a decline in activity in over half the related sectors. Meanwhile, activity slowed in the services sector to 2.7% from 3.4%, as growth slowed in nearly every sector, namely wholesale and trade (1.4% vs 1.5%) and transportation (3.1% vs 3.6%). In contrast, activity in industry edged higher to 7.3% from 7.2%, driven by a rebound in repair, instalation and other manufacturing (3.3% vs -13.9%) while growth accelerated in the manufacture of wood and related products (13.9% vs 6.6%).

Sri Lanka’s economy expanded by 5.1% year-on-year in the first quarter of 2026, accelerating from 4.8% growth in the previous quarter. The services sector grew 3.4%, up from 2.1%, supported by broad-based gains across most subsectors, particularly insurance (22.0%) and IT programming and consultancy (16.1%). Industrial activity increased 7.2%, compared with 8.1% in the previous quarter, driven mainly by strong growth in construction (16.3%), mining and quarrying (19.5%), and manufacturing (2.8%). Meanwhile, agricultural activity expanded by 1.1%, slowing from 2.1%, as declines in export-oriented agricultural production partly offset gains in other segments of the sector. Given the country’s heavy reliance on imported fuel, a fuel rationing was implemented in March, alongside public holidays on Wednesdays, which limit consumption and is likely to dampen economic growth.The IMF, which is supporting the country, expects the economy to slow to 3% in 2026 from 5% in the previous year.

Sri Lanka's economy expanded 4.8% year-on-year in the fourth quarter of 2025, easing from a 5.4% expansion in the previous quarter. The slowdown was reflected across all three major sectors of the economy, with agricultural activities slowing the most (2.1% versus 3.6% in Q3 2025). Industrial production also slowed (7.3% versus 8.1%), despite recording strong performances for construction (8%), mining and quarrying (20.9%), utilities (10.5%) and manufacture of basic metals (19.1%). Services activities growth eased (3.1% versus 3.5%), supported by increases in wholesale and trade (1.3%), transports (1.2%), real estate activities (2.7%) and financial services (9.7%). Considering the full year, Sri Lanka's GDP expanded by 5% while still recovering from it's financial crisis. The economy is heavily reliant on fuel imports, making it exposed to fluctuations in global energy prices, which have risen since the onset of the Middle East conflict.