Despite a modest recovery in the overall economy during the third quarter, Sri Lanka’s construction sector, which is known for its significant employment generation, has continued to shrink. This contraction has persisted for two consecutive years, extending into the third quarter of 2023.
Based on the latest Gross Domestic Product (GDP) data, the construction sector, which contributed 6.3 percent to the economy, contracted by 5.5 percent in the July-September quarter compared to the previous year. This brings the sector’s decline over the nine-month period to 24.8 percent.
However, there is a notable slowdown in the sector’s decline compared to the 23.1 percent contraction observed in the second quarter. This indicates that the sector is approaching the end of its downward trend, which has lasted for two years.
Although the construction sector faced significant challenges at the beginning of the pandemic in 2020, such as lockdowns and restrictions on physical work, it experienced a strong rebound in the latter part of the year, supported by historically low interest rates. This led to a surge in real estate prices due to high demand for residential properties, surpassing the available housing supply.
Unfortunately, this recovery was short-lived as the sector began to show weaknesses in the second half of 2021. The imposition of the third cycle of lockdowns, aimed at controlling the resurgence of the virus, further contributed to the downturn. Additionally, the sector faced difficulties due to foreign exchange shortages caused by repeated disruptions to economic activities and significant outflows of foreign exchange through debt repayments.
These prolonged foreign exchange shortages compelled authorities to ration the supply of foreign currency, resulting in limited availability and shortages of imported items for the industry. As a consequence, prices of these items skyrocketed, negatively impacting the industry in the long run.
The challenges faced by the construction sector intensified in 2022 when the economy experienced a downturn.
