Pacific economy: Growth slowing as post-pandemic rebound fades

Growth across 11 Pacific island economies has slowed significantly this year to 3.6 per cent after a robust 5.8 per cent expansion in 2023, the World Bank says.

In its latest Pacific Economic Update, the World Bank provides an assessment of the economies of 11 island states and highlights the potential of investment to create long-lasting, positive economic change in the region.

The report, Diminishing Growth amid Global Uncertainty: Ramping up Investment in the Pacific, is the first post-pandemic data on investment trends and outlook for the Pacific.

"As the pandemic recovery fades, growth in the Pacific is slowing," it said.

"Weaker investment, natural disasters, and climate change are expected to keep holding back growth.

In a recent meeting with World Bank Group President Ajay Banga, leaders from 11 Pacific Island nations reaffirmed the vital role of International Development Association (IDA - World Bank Group) in supporting their development priorities. Photo/World Bank Pacific

"This slowdown will make it harder for people in the region to improve their quality of life, with poverty likely to remain high compared to countries with similar incomes.

"The income gap with richer nations is also expected to widen. To address these issues, the Pacific will need to pursue strategies that drive investment," the World Bank said.

Pacific nations assessed included the Federated States of Micronesia (FSM), Fiji, Kiribati, Marshall Islands, Nauru, Palau, Sāmoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.

Chief economist at BERL, Hillmare Schulze, says the report does not paint a rosy picture for the Pacific Island countries.

But she told William Terite on Pacific Mornings that while economic growth in the region has slowed, there are some positive signs in some countries.

"Last year, we had quite a whopping growth of 5.8 per cent and in 2024, it's dropped to about 3.6 per cent. But it does hide some of the good stories within that number.

"We know that Fiji has a significant impact on these numbers just in terms of share size and share of the economy.

"We know that the rest, apart from Fiji and Solomon Islands, the rest of the Pacific Island countries have actually seen some economic growth between 2023 and 2024."

The World Bank has called for a major boost in investment to address the slow economic growth.

The report also underscores the urgent need for targeted investment to create jobs, improve infrastructure, and build resilience against climate change amid global uncertainty.

It says actions are crucial for improving the livelihoods of Pacific communities and narrowing the income gap with higher-income nations.

Schulze agrees the slowdown is attributed to weaker investment, increasing climate risks, and structural challenges, all amid continuing global uncertainty that continues to hold back progress.

"Pacific Island countries are dependent on exports. If the rest of the world sneezes, we have flu. So, it really depends on what happens. The rest of the world, both developed and developing countries have been fighting and are still fighting high inflation, increased government debt, rising geopolitical tensions, and a lot of trade issues.

"We know that the IMF, the World Bank, everyone is saying that the rest of this year, and even 2025, we will not see an increase in economic growth for the global economy.

"In the Pacific, Fiji and Solomon Islands have slightly more diversified economies. Then you have the tourism and remittance-led economies, which includes Palau, Sāmoa, Tonga, and Vanuatu.

"And we have seen a pickup in tourism and remittances. So this is labour going from the Pacific to other countries, majority to Australia and to New Zealand, the seasonal worker schemes, and for Fiji, Sāmoa, Vanuatu, and Tonga.

"Tourism has definitely been driving the increase in economic growth. And the sovereign-led countries that are dependent on leasing their access to the exclusive economic zone and that has been ticking along, but not at the same rate as the increase in countries that have tourism and remittances."

The World Bank warned that without immediate action to ramp up investment, Pacific island nations may struggle to reduce poverty or generate new economic opportunities for the region's people.

Stephen Ndegwa is the World Bank's Country Director for the Pacific and Papua New Guinea. Photo/World Bank

"The Pacific faces mounting challenges, but there is also an opportunity for transformation," Stephen N. Ndegwa, World Bank Country Director for the Pacific and Papua New Guinea, says.

"By prioritising investments in key sectors and increasing efficiency, Pacific countries can unlock economic growth that directly benefits local communities, creates jobs, and strengthens resilience to the impacts of climate change."

Schulze has some suggestions for Pacific nations to drive investment and ensure local communities benefit from economic growth.

These include greater investment in high-potential sectors like agriculture, sustainable tourism, and the blue economy, which can create jobs and support rural livelihoods.

She says improving infrastructure such as roads, ports, and energy systems will boost connectivity, enabling businesses to expand and creating more job opportunities.

Schulze says with the right policies boosting investment, Pacific nations can overcome their economic challenges, build a more resilient future, and create tangible benefits for their communities, businesses, and governments.