Standard Chartered Bank (SCB) has predicted that Sri Lankan economy will grow by 7.2 percent in 2013 with an increase in investment and remittances, Standard Chartered Bank (SCB) said.

“We expect Gross Domestic Product (GDP) growth of 7.2 percent in 2013, supported by a pickup in investment, strong remittance inflows and steady growth in tourism and construction sectors,” SCB said in its’ Global Focus 2013 The Year Ahead’ publication.

However, it said weak demand from Sri Lanka’s key export markets, the U.S. and the EU, is likely to persist. “But we expect a modest improvement in 2013 as the global recovery gathers momentum. Domestic activity is likely to compensate for slower export growth.”

A large fiscal deficit and the possibility of higher food prices in international markets in the first half of 2013 triggered by drought in Europe and natural disasters in the U.S. are key challenges.

A potential oil-price shock also poses substantial risk to the balance of payments, SCB said, adding that higher oil prices could worsen Sri Lanka’s fiscal position. “Trade balance is likely to remain in deficit amid rising demand for investment goods to support growth,” it added.

SCB expects robust remittance inflows and tourism receipts to help narrow the current account deficit to 4.5 percent of GDP in 2013 from 6.1 percent in 2013.

According to SCB, in 2013, the policy focus is likely to shift to supporting growth from tackling high inflation and credit growth.