December 04, Colombo (LNW): The severe impact of Cyclone Ditwah in late November, which brought extensive flooding and landslides across Sri Lanka, is expected to trim the country’s real GDP growth by roughly 0.5 to 0.7 percentage points, according to a rapid assessment released by First Capital Research (FCR).
Drawing parallels with past natural disasters such as the 2016 floods and the 2004 tsunami, the report suggests that disruptions to consumption, investment, and exports are likely to outweigh any temporary boost from government relief spending. Nevertheless, FCR continues to project overall growth of 3.0 to 4.0 percent for 2026.
Private consumption, which makes up around 68 percent of national output, is anticipated to bear the brunt of the cyclone’s effects. Reduced crop yields, income losses in rural areas, and damage to small and medium-sized enterprises are expected to weaken consumer demand.
Although government expenditure will rise moderately to fund emergency relief and infrastructure repairs, analysts caution this will not fully offset the decline in private-sector activity. Investment is also likely to slow as businesses cope with operational disruptions.
Inflation is expected to climb in the short term, with headline rates projected to rise by around 40 basis points. The flooding has affected harvesting, storage, and transportation, causing shortages in key food items such as vegetables, fruits, and coconuts. Consequently, the annual average inflation forecast for 2026 has been revised upward from 2.9 percent to 3.3 percent.
The external sector presents a mixed picture. Tourism, a major source of foreign exchange, faces a temporary setback as flooding inundated parts of Colombo and damaged coastal hotels, prompting a slight downward revision of 2025 tourism revenue to US$3.2 billion from US$3.3 billion.
However, remittances from Sri Lankans abroad are expected to rise by 10–15 percent over the next six months as families receive support from expatriates, potentially reaching US$8.8 billion in 2026.
On the fiscal side, emergency relief and rehabilitation spending are projected to widen the budget deficit by approximately 0.1 percent of GDP. The government has already earmarked Rs.30 billion in the 2025 budget for disaster-related needs.
Despite these pressures, FCR expects currency depreciation to remain moderate at around 5 percent in 2026, as inflows from remittances and international aid are likely to balance post-disaster import demand.
