Colombo, Aug 24 (IANS): Sri Lanka's domestic economic activity is expected to recover in the second half of this year, Central Bank of Sri Lanka said in a statement on Thursday.

As per the central bank, in the overall context, leading indicators of economic activity point to a lower contraction in gross domestic product (GDP) in the second quarter of this year, compared to the previous projections, while the second half is expected to record a positive growth, compared to the same period of last year, Xinhua news agency reported.

The recovery would be supported by normalisation of monetary conditions, improvement in business confidence, enhancement in supply conditions, relaxation of import restrictions, and the impact of growth-promoting structural reforms.

"However, the impact of weather related disruptions and modest external demand conditions could weigh on expected growth in the near term," the statement said.

The central bank said the headline inflation is expected to moderate further over the next few months.

"The trade deficit decreased notably during the seven months ending July 2023 with a significant decrease in merchandise imports, despite the decrease in merchandise exports," it said.

Earnings from tourism and workers' remittances, which increased considerably in the January-July period, are expected to rise further, it added.