Colombo, Sri Lanka – 11 September 2026
Sri Lanka’s business environment experienced a complex dynamic in the second quarter of 2026, with overall sentiment easing amidst geopolitical tensions, yet showing robust signs of recovery and optimism for the third quarter. The Central Bank of Sri Lanka (CBSL) revealed these insights in its latest “Executive Summary of BOS – Quarter 2, 2026,” published today.
The Business Outlook Survey (BOS), a quarterly assessment by the CBSL’s Statistics Department, indicated that while macroeconomic uncertainties, primarily stemming from the conflict in the Middle East, tempered business confidence in Q2, expectations for Q3 point towards a significant rebound, driven by an easing of global tensions and resilient domestic sectors.
Q2 2026: Navigating External Pressures
The second quarter of 2026 saw the Business Condition Index, which gauges firms’ perceptions of the current and future business landscape, ease compared to previous quarters. Despite this dip, the index remained marginally above the crucial neutral threshold of 100, suggesting that businesses, while cautious, were not entirely pessimistic.
- Sectoral Performance: The slowdown in overall business sentiment was largely attributed to weaker conditions in the Agriculture and Industry sectors. In contrast, the Services sector demonstrated remarkable resilience, cushioning the overall impact.
- Business Activities: Despite the broader easing of sentiment, the Industry and Services sectors successfully buoyed overall sales and demand volume indices in Q2, leading to an improvement in overall business activities. The Agriculture sector, however, remained broadly around the neutral threshold.
- Capacity and Investment: Encouragingly, overall capacity utilisation improved on a year-on-year basis during Q2 2026. The balance of opinion on investment also showed an improvement, indicating firms were still willing to commit capital despite the external challenges.
- Prices and Credit: Firms across all three sectors reported a notable year-on-year increase in both input and output prices. Demand for bank credit also rose across all sectors, primarily for operational purposes. While credit accessibility was generally reported as normal, some respondents cited higher-than-expected market lending rates and existing balance sheet constraints as headwinds to obtaining credit.
Q3 2026 Outlook: A Resurgence of Confidence
Looking ahead, the outlook for Q3 2026 signals a promising upturn in business confidence, largely on the back of anticipated global de-escalation.
- Demand and Sales: Demand and sales volumes are projected to expand year-on-year in Q3, with the Industry and Services sectors expected to be the primary drivers. The Agriculture sector, however, is anticipated to remain below the neutral threshold.
- Capacity Utilisation and Investment: In line with improved demand conditions, capacity utilisation is projected to improve further. The balance of opinion on investment is also expected to strengthen, particularly within the Industry and Services sectors, where a majority of firms plan to invest for expansion.
- Labour Market: A key area of concern remains labour availability, with both skilled and unskilled labour projected to remain below the neutral threshold in Q3 2026, indicating persistent shortages.
- Credit Conditions: Demand for bank credit is expected to continue its upward trend in Q3, predominantly to support operational activities across businesses.
The CBSL’s Business Outlook Survey provides critical insights into the real-time perceptions and future expectations of around 100 firms, carefully selected to reflect Sri Lanka’s Gross Domestic Product composition. The index measures the balance of opinion, with a score above 100 indicating improvement or increase, 100 representing neutrality, and below 100 signifying a worsening or decrease.
The mixed signals from Q2 2026, coupled with the optimistic projections for Q3, underscore the resilience of Sri Lankan businesses in adapting to global uncertainties while positioning themselves for future growth, particularly within the dynamic Industry and Services sectors.
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