COLOMBO, Dec 31: Sri Lanka’s economy grew by a better than expected 6.4 per cent in the third quarter of this year, just before the latest upsurge in violence between the army and suspected Tamil rebels, officials said on Friday.

The embattled nation’s year-end inflation rate, however, hit 11.6 per cent, up from 7.6 per cent last year, the Census and Statistics department said.

It added that inflation eased marginally during December because of lower food prices.

The growth figure covered the three-month period to September, before clashes between government forces and suspected Tamil Tiger rebels intensified this month leaving at least 83 people dead despite a truce that has been in place since February 2002.

Sri Lanka’s Central Bank said meanwhile that the adverse effects of the December 2004 tsunami, which killed some 31,000 people and left a million homeless, continued to be felt in the fishing, hotel and restaurant sectors.

Rebuilding efforts along the island’s tsunami-hit coastline had however given a boost to the construction sector.

Sri Lanka has experienced three years of economic expansion since the ceasefire with the Tamil rebels went into effect.

With the unexpectedly better performance in the third quarter, the Central Bank also revised its forecast for 2005 growth to 5.5 per cent from the previous 5.0 per cent.

Growth in the $20 billion economy may slow down next year if violence intensifies, however, said economist Channa Amaratunga at Boston Asset Management.

Looking forward, a lot will depend on the peace front. Investment, consumer confidence erodes when you get this kind of proxy war like now, said Amaratunga.

Both the Tamil Tiger rebels and the Sri Lankan government have blamed each other for the upsurge in violence in the island’s troubled northern and eastern regions and truce monitors have warned that a return to open war may not be too far away.

Diplomatic efforts to salvage the ceasefire remain inconclusive but Norway on Thursday announced it was sending International Development Minister Erik Solheim next month to talk to both sides in a bid to end the talks deadlock. —AFP