Sri Lanka economy growth strengthened markedly in the third quarter of 2025, with official data showing broad-based expansion across agriculture, manufacturing, and services, underpinned by financial stability, resilient demand, and improving sector confidence despite emerging currency pressures.
Sri Lanka economy growth gains momentum in Q3 2025 across agriculture, industry, and services
Sri Lanka’s economy recorded a solid expansion in the third quarter of 2025, reinforcing signs of a sustained recovery following years of macroeconomic stress. According to data released by the Department of Census and Statistics, gross domestic product grew by 5.4 percent year-on-year, reflecting renewed momentum across key productive sectors and strengthening financial activity.
Agriculture, a cornerstone of the domestic economy and rural livelihoods, expanded by 3.6 percent during the quarter. This growth reflects relatively stable cultivation conditions, improved productivity in selected crops, and continued adaptation by producers to input cost pressures. While the sector’s growth rate was moderate compared to industry, it contributed meaningfully to overall economic performance, particularly through food security and employment stability.
Manufacturing emerged as one of the strongest drivers of third-quarter growth, expanding by a notable 8.1 percent. The performance highlights a gradual revival in industrial activity, supported by lower imports of intermediate goods and improved capacity utilisation in selected segments. Analysts note that restrained import demand, partly driven by cautious spending and improved local sourcing, played a key role in supporting domestic manufacturing and construction-related activities.
Services, the largest contributor to Sri Lanka’s GDP, grew by 3.5 percent during the quarter. While this represents a more measured pace compared to manufacturing, the services sector continued to benefit from tourism, financial activity, and technology-related services. The performance underscores the sector’s resilience and its central role in sustaining overall economic momentum.
A critical factor supporting the expansion has been macroeconomic stability maintained throughout 2025. The Central Bank of Sri Lanka’s policy stance helped provide a predictable operating environment for businesses and households, encouraging investment, lending, and consumption. Stable inflation trends and a relatively orderly financial system created a foundation for economic agents to plan and expand operations with greater confidence.
Currency dynamics, however, presented a more complex picture during the period. The Sri Lankan rupee began to weaken toward the latter part of the year, raising concerns about import costs and external balances. Despite this, imported goods prices remained stable or declined in some categories, partly due to tighter monetary policy in the United States, which helped suppress global price pressures. This unusual combination cushioned domestic producers from sharper cost increases, even as exchange rate pressures re-emerged.
Lower imports of intermediate goods were identified as a fundamental contributor to growth in certain manufacturing and construction activities. While reduced imports can reflect subdued demand, in this context they also point to improved efficiency, substitution toward local inputs, and cautious inventory management by firms navigating an uncertain global environment.
The financial sector recorded particularly strong performance, supported by expanding private credit and renewed lending activity. Officials described the growth as “striking,” with financial services playing an increasingly prominent role in the economic recovery. Insurance, reinsurance, and pension funding activities expanded by an impressive 18.0 percent, reflecting rising household and corporate engagement with formal risk management and long-term financial planning.
Financial service activities more broadly grew by 13.2 percent, underscoring improved balance sheet conditions and growing confidence in the banking and non-banking sectors. Credit growth supported consumption, working capital needs, and investment, feeding into broader economic activity across multiple industries.
Tourism-linked services also continued to show strength. Accommodation, food, and beverage serving activities grew by 9.3 percent, benefiting from steady tourist arrivals and increased domestic travel. This segment has been a consistent contributor to services growth, supporting employment and foreign exchange earnings while stimulating related industries such as transport and retail.
Information technology services added another layer of support to the economy. IT programming, consultancy, and related activities expanded by 8.5 percent, highlighting Sri Lanka’s growing role as a regional technology and outsourcing hub. Continued demand for digital services, combined with a skilled workforce, has positioned the sector as an important medium-term growth driver.
Taken together, the third-quarter data suggest that Sri Lanka economy growth is becoming more balanced and diversified. While vulnerabilities remain, including currency pressures and global economic uncertainty, the breadth of expansion across agriculture, industry, and services points to a more durable recovery than in previous cycles.
Economists caution that sustaining this momentum will require careful policy calibration, particularly in managing external risks and ensuring that credit growth remains aligned with productive investment. Continued focus on export competitiveness, productivity gains, and fiscal discipline will be essential to maintain confidence and support long-term growth.
Nevertheless, the 5.4 percent expansion in the third quarter represents a meaningful milestone. It signals that the economy is moving beyond stabilisation toward a phase of measured expansion, supported by financial sector strength, resilient services, and a recovering industrial base. As Sri Lanka navigates the remainder of the year, the latest figures provide cautious optimism that the foundations for sustained economic growth are gradually taking shape.