The Asian Development Bank (ADB) forecasts economic growth of 1.1 percent in the Pacific subregion in 2018, down from earlier forecasts due to disaster-related challenges and declines in public spending.
The new forecast, published in the Asian Development Outlook 2018 Update, is down from 2.2 percent growth projected in April.
A weaker outlook for Papua New Guinea (PNG) and Timor-Leste, the Pacific’s largest and third-largest economies, pulled the forecast lower. Growth across the subregion is expected to accelerate to 3.1 percent in 2019.
In PNG, the economic impact of an earthquake in Hela Province in February has proved worse than initial estimates. Production of liquefied natural gas, which accounts for 14 percent of PNG’s gross domestic product, is expected to be at least 10 percent below 2017 levels. Production of gold, oil, and condensate will also be lower. The PNG economy is expected to grow by 0.5 percent in 2018, down from a projection of 1.8 percent in April.
In Timor-Leste, growth is expected to slow in both 2018 and 2019 as political uncertainty stymies government spending and private investment. Delays in resolving a political impasse that began in 2017 have sharply curtailed economic activity. The economy is expected to grow by 0.6 percent in 2018, down from 3.0 percent forecast in April.
“Disaster resilience and public sector management are cornerstones of ADB’s work in the Pacific,” said ADB Director General for the Pacific Carmela Locsin. “ADB will continue to work with countries in the region to build disaster readiness and support policy reforms to maximize the value of public investments.”
The outlook in Solomon Islands, Tuvalu, and Nauru has improved. In Solomon Islands, the economy is expected to expand by 3.2 percent in 2018, slightly more than forecast in April, buoyed by strong logging, agriculture, and mining outputs in the first half.
In Tuvalu, windfall fishing license revenue is being mobilized to provide more fiscal stimulus, pushing up the 2018 forecast to 3.8 percent, from 3.0 percent in April.
In Nauru, although the economy is still expected to contract by 3.0 percent, this represents some improvement from a 4.0 percent contraction forecast in April.
Slower than anticipated recovery in visitor arrivals in Palau, an economy driven by tourism, has pushed down the 2018 growth forecast to 1.0 percent from 3.0 percent projected in April.
Forecasts for 2018 growth remain unchanged for Fiji at 3.6 percent, Vanuatu at 3.2 percent, the Cook Islands at 3.5 percent, Samoa at 0.5 percent, Tonga at –0.3 percent, Kiribati at 2.3 percent, the Federated States of Micronesia at 2.0 percent, and the Marshall Islands at 2.5 percent.
Tourism and agriculture continue to lift growth in Fiji. Tourism will also drive economic expansion in the Cook Islands and Samoa, while Tonga’s economic recovery from the impact of Tropical Cyclone Gita remains on track. Economic growth in Kiribati is being supported by the implementation of infrastructure projects financed by development partners.
Regional inflation is now seen to remain steady at 4.2 percent in 2018 as higher taxes and international commodity price movements caused costs to rise higher than expected in several Pacific economies. Inflation in the subregion is expected to moderate slightly to 3.9 percent in 2019. (ADB)