ADB Revises Growth Prospects for Pacific

News Release | 22 September 2009

MANILA, PHILIPPINES - Economic growth in the Pacific will slow sharply in 2009, with five economies in the region expected to contract as the global economic slump continues to erode incomes from tourism and remittances, says a major new report from the Asian Development Bank (ADB).

The Asian Development Outlook 2009 Update (ADO Update) released today, projects growth for the 14 island economies to slow to 2.8%, down from 5.2% in 2008. Only the region's mining and petroleum exporters - Papua New Guinea (PNG) and Timor-Leste, and Vanuatu, a key reformer in the area of private sector oriented growth - are expected to grow at a reasonable rate in 2009. The Cook Islands, Fiji Islands, Palau, Samoa, and Tonga are all projected to contract. Solomon Islands is now expected to record no growth because log exports are declining sharply.

ADO Update slightly downgrades an earlier ADB estimate of 3% for full-year growth in the Pacific region. The revision to the March forecast is mainly driven by a less optimistic forecast for Timor-Leste, from 12% to 8%, after it trimmed public spending to more sustainable levels since the easing of world oil prices.

The report says that, since March, PNG's prospects have improved slightly to 4.5%, as export earnings benefit from a faster than anticipated recovery in key commodity prices. Growth forecasts for Vanuatu have also been revised up to 4% for 2009, reflecting strength in tourism and signs of an improvement in domestic demand.

In 2010, ADO Update forecasts that the region will benefit from improved prospects in the international economy. The report says a modest recovery is considered achievable if the Pacific continues to pursue private sector development reform activities such as increasing access to finance opportunities, reforming state-owned enterprises, and involving the private sector participation in the delivery of essential services.

However, much of the overall growth of 3.1% is likely to be accounted for by the region's two biggest economies, Papua New Guinea and Timor-Leste, which are expected to be bolstered by higher average global oil and mineral prices. Excluding Papua New Guinea and Timor-Leste, the rest of the region will grow at just 0.8%, assuming a slow, gradual pickup from tourism and remittances and the implementation of effective policy responses to this year's slowdown.

"The beginning of a modest economic recovery will be within the reach of most Pacific economies during 2010," says S.Hafeez Rahman, Director General of ADB's Pacific Department. "Sustainable economic recovery will require concerted action by the region's governments."

Lower prices this year for imported fuel and food have trimmed inflation forecasts for the region and provided some relief to vulnerable groups that were seriously hurt by high prices in 2008. The report projects inflation will slow to an average 6.1% this year, down from 9.5% in 2008. However, the report warns that a recent rise in crude oil prices may push up inflation in the remainder of the year.

Asian Development Outlook, and Asian Development Outlook Update, are ADB's flagship economic reports analyzing the economic conditions and prospects in Asia and the Pacific, and are issued in March and September, respectively.