Pacific economies set to slow says Asian Development Bank | Pacific Beat

Pacific economies set to slow says Asian Development Bank

Pacific economies set to slow says Asian Development Bank

Updated 26 March 2013, 12:20 AEDT

Economic growth in the Pacific slowed in 2012 and the Asian Development Bank say it expects the slowdown to continue this year, as gains from major investment and public infrastructure projects fade.

Figures in the ADB's latest Pacific Economic Monitor show regional growth dropped to 7.3 per cent in 2012, down from a post global finacial crisis high of 8.3% in 2011.

And growth is expected to slow to 5.2% in 2013 before beginning to pick up again.

Presenter: Jemima Garrett

Speaker: Chris Edmonds Asian Development Bank Senior Pacific Economist

EDMONDS: We can look at the countries that are expecting the largest fall-offs in their growth rates, because obviously that requires a significant transition. And those countries would be Papua New Guinea, Solomon Islands and I guess those are the big two that see the biggest fall-off. With the wrap-up of the work on the LNG pipeline in PNG really driving a much lower growth forecast in that country. And in Solomon Islands we see declining logging revenues as driving economic growth a little lower in Solomon Islands.

GARRETT: So just how much of a drop are we going to see in Solomon Islands?

EDMONDS: So ADB is predicting about a one-point-five percentage point fall-off in growth, so going from estimated 2012 growth of 5.5 per cent to just 4 per cent growth in 2013.

GARRETT: Is that a problem when the logs are near the end of their time anyway because of over-exploitation?

EDMONDS: This has been a longstanding issue of concern in the Solomon Islands. For years different experts have been predicting the islands are going to run out of virgin forest land. Admittedly those predictions have been premature in that in past years we've been predicting a fall-off and the industry has continued to export at high rates. But perhaps now that is finally starting to catch-up a little bit with the island.

GARRETT: More broadly you say that much of the drop in growth is due to a fall-off in gains from major investment and public infrastructure projects. What are we seeing exactly?

EDMONDS: Well the forecast for PNG has that country's growth going from an estimated 9.2 per cent the past year down to roughly5.5 per cent in 2013, so quite a significant drop.

GARRETT: And to what extent are other countries affected by the drop-off in public infrastructure projects and major investments?

EDMONDS: I guess if you look at some of the smaller Pacific Island countries, it's not that the projects are at that larger scale, but these are economies with fairly narrow economic bases, and in many cases not a lot of private sector activity driving growth. So in countries like Federated States of Micronesia we're expecting growth to fall from 1.4 per cent to 1 per cent as the airport improvement project is winding down.

GARRETT: There's some good news too, some countries involved in tourism saw higher economic growth in 2012. What's the story there?

EDMONDS: I guess the big story there is that the linkages they have with their established tourism market seems to be doing well. As the global recovery sort of staggers along but each week further we see some positive signs on the global economy, and tourism growth seems to be robust as a result of that. In particular I think we have Fiji with rising tourism, definitely Vanuatu had a good year in 2012, as did Cook Islands.

GARRETT: Looking ahead what are you expecting for growth across the region this year and next?

EDMONDS: Our growth forecast for 2013 is 5.2 per cent. And in 2014 a slight uptake to 5.5 per cent, as LNG exports start from PNG and we see a number of public infrastructure projects starting in some of the smaller economies.

GARRETT : Apart from tourism, which sectors do you expect to be doing best for Pacific countries in 2013 and 2014?

EDMONDS: It's tough to say, I mean again the sectors that are showing the most dynamism in terms of driving growth in the countries have been the resource extraction industries, in the larger economies of the region. And those will tend to grow and fluctuate as global prices for the mineral and energy exports grow and fluctuate. So that will foreseeably be the main driver of the growth in the faster growing economies in the region. Aside from those again it is on the back of the public infrastructure in the smaller economies, as well as you hope more service sector work from spill-overs associated with the infrastructure work.

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