‘Improved prospects’: ADB projects economic growth for the Pacific

Pacific economies are expected to grow at more than 3 per cent this year and 4 per cent next year, the Asian Development Bank says.

In its latest report released last week, the bank says Pacific economies have expanded by an average of 3.5 per cent in 2023 as business activity resumed in earnest after the Covid-19 pandemic.

ADB director-general for the Pacific, Leah Gutierrez, said large construction projects and tourism continue to drive growth in many Pacific economies, but risks to the outlook remain.

Asian Development Bank's director-general in the Pacific, Leah Gutierrez, says in order to achieve and maintain this growth, targeted policies in the Pacific are urgently needed to address labour gaps while sustaining remittance flows and balancing fiscal sustainability with long-term investment. Photo/ADB

"Growth of 3.3 per cent is projected in 2024 and 4 per cent in 2025. The outlook is driven by improved prospects for the mining sector in Papua New Guinea (PNG), the subregion's largest economy," Gutierrez said in a statement.

But she said to achieve and maintain this growth, targeted policies in the Pacific were urgently needed to address labour gaps while sustaining remittance flows and balancing fiscal sustainability with long-term investment.

“Governments must also find ways to improve resilience to shocks, especially with the increasing threat of disasters and the impacts of climate change," Gutierrez said.

She said after moderating to 3 per cent in 2023, inflation in the Pacific would rise by 4.3 per cent in 2024 and 4.1 per cent in 2025, “although global commodity prices are seen to be less volatile, domestic factors exert price pressures in many economies”.

Amid a technical recession, New Zealand’s unemployment rate could rise to 5 per cent by the end of the year, economists say.

The experts have also warned that Aotearoa’s state-sector job cuts have cast more gloom on the recession-hit economy, resulting in the worst-ever employment market.

The new conservative coalition government has made good on its 100-day action plan since winning the election in October.

Prime Minister Christopher Luxon said the government is tightening its purse strings as it reduces public-sector expenditure by 6.5 per cent.

Two mainstream news platforms TVNZ and Newshub announced last month significant downsizes to their operations, with one shutting its doors for good in July.

Economist and political commentator Filipo Katavake-McGrath told PMN’s Pacific Mornings that the changes were monumental.

Watch Filipo Katavake-McGrath's interview below.

He said the media industry would need to adapt to Aotearoa’s changing audiences.

“Commercial news is expensive … one of the big challenges facing the broadcast sector here and around the world is trying to get people to switch off radios and to switch on computers so that everything can be done down the broadband lines, which would be significantly cheaper.”

In the Solomon Islands, which holds its general election this week, the ADB expects growth there to moderate slightly to 2.2 per cent this year and next year as activities related to the 2023 Pacific Games wind down.

The Solomons’ public debt was projected to increase, the ADB report said, but it would remain within the government’s limits to finance infrastructure and budget deficits, and inflation would decelerate in line with global trends.

“Balancing fiscal sustainability with long-term investment needs is an ongoing challenge for the Solomon Islands.”

Tourism and construction including public infrastructure projects will sustain growth in the South Pacific economies, the ADB report stated.

“Growth in the Cook Islands will reach 9.1 per cent in 2024, moderating to 5.2 per cent in 2025, while expansion in the tourism and construction sectors in Samoa is projected to grow at 4.2 per cent in 2024 and 4.0 per cent in 2025.

“Ongoing construction activities and investments in climate resilience will continue to support growth in Tonga, which is projected at 2.6 per cent in 2024 and 2.3 per cent in 2025.

“Niue's economy improved in 2024 due to a pick-up in tourism,” the report said.

However, visitor arrivals remained well below pre-pandemic levels in Niue.

Flags of the Pacific Islands Forum member states. Photo/PIFS

The report said that policies must balance the need to address local labour gaps with sustaining remittance flows to maintain growth.

The ADB found that growth in Papua New Guinea slowed to 2.0 per cent in 2023 due to decreased production in the resource sector.

“Foreign exchange restrictions and frequent power disruptions also dampened activity in the rest of the economy.

“The resumption of production at the Porgera gold mine will accelerate growth in 2024 to 3.3 per cent and 4.6 per cent in 2025.

“The fallout from civil unrest in January this year and a poor business environment continue to cloud the outlook.”

The ADB said reforms to improve the power sector's financial sustainability and generation infrastructure, including increased use of renewable energy and private sector investment, were needed to help address power supply constraints on growth in PNG.

For Fiji, the second-largest economy in the South Pacific, the ADB found that tourism and increased remittances would continue as the main drivers of growth this year.

“Growth is projected to slow to 3.0 per cent in 2024 and further to 2.7 per cent in 2025, largely due to the projected slowdown in travel demand and significant capacity limits in tourism. “Sustaining tourism growth will require boosting investment, promoting tourism activity in other areas, particularly in the outer islands, and attracting other segments of tourism markets.”

In Vanuatu, economic growth is projected at 3.1 per cent in 2024 and 3.6 per cent in 2025.

Vanuatu is expected to depend on tourism growth and reconstruction in the aftermath of three cyclones that damaged infrastructure and agriculture in 2023, the report said.

The ADB says Vanuatu will depend on tourism growth and reconstruction in the aftermath of three cyclones that damaged infrastructure and agriculture in 2023. Photo/Joseph Molkis

“With the rising intensity and frequency of climate-induced disasters, alternative ways to finance disaster preparedness and response must be found.”

In the northern Pacific, the economies there improved due to visitor arrivals increasing in Palau and high business activity in the Federated States of Micronesia (FSM) and the Marshall Islands, post-Covid-19 pandemic-related mobility restrictions.

Economic growth in the FSM is projected at 3.1 per cent in 2024, moderating slightly to 2.8 per cent in 2025.

The Marshall Islands’ economy is projected to expand by 2.7 per cent this year and 1.7 per cent next year.

Palau’s economic growth, driven by tourism and construction, is expected to remain in 2024 reaching 6.5 per cent in 2024 and then increasing to 8.0 per cent in 2025.

“Stronger public sector management remains key to using the financial assistance anticipated under the North Pacific economies' renewed Compacts of Free Association with the United States to upscale productive investments, improve the quality of public services, and build resilience.”

In the Central Pacific, the implementation of infrastructure projects is seen to drive economic expansion in the Central Pacific economies, the ADB said.

It added that growth in Kiribati is projected at 5.3 per cent this year and 3.5 per cent next year, while Tuvalu is set for 3.5 per cent in 2024 and 2.4 per cent in 2025.

Since the end of the Australia-funded Regional Processing Centre, construction, and services exports, are expected to boost the Nauru economy.

Growth there is projected at 1.8 per cent this year, and 2.0 per cent next year.

The ADB report said that as rising sea levels threatened the livelihoods and existence of the Central Pacific economies, immediate and concerted efforts to mitigate this threat were needed.