ADB predicts economic slowdown

Thursday May 02, 2019 Written by Published in Economy

The Asian Development Bank (ADB) has forecast a fairly major slowdown for the Cook Islands economy in next year or so.

 

Last year the country’s growth rate was seven per cent, but that will ease to six per cent this year. However, the ADB believes that rate will slump to 4.5 per cent next year.

The ADB’s chief economist Yasuyuki Sawada explained the nation’s growth depended very much upon major projects and tourism.

“The Cook Islands growth rate last year was 7.0 per cent supported by very strong growth in tourism and related sectors. There was very strong growth in retail trade, restaurants, hotels - all benefitted last year. So this year slowing down to 6.0 per cent and next year 4.5 per cent.

“Tourism and large infrastructure projects for water supply and sanitation, renewable energy and internet connectivity will continue to maintain growth,” Sawada said.

“It seems next year there will be a binding constraint of tourism.  The availability of accommodation - seems to face some capacity binding constraint - so that’s the reason we revised growth rate downwards to 4.5 per cent next year.

“After all tourism is a leading sector and the tourism capacity constraint - also the number of tourists coming in - these are the decisive factors for the Cook Islands growth rate.” 

Despite the forecast fall, the Cook Islands will still have the second strongest growth rate in the Pacific – only behind Timor-Leste (5.4) – and just ahead of Tuvalu (4.4). 

Sawada had five key messages for delegates, including those from the Cook Islands, at the ADB conference in Nadi, Fiji.

He said for the 45 developing member countries included in the figures this year, consolidated growth will slightly moderate from 5.9 per cent last year to 5.7 per cent this year. Expected growth for 2020 is 5.6 per cent.

In part, Sawada said, this was due to global slowing and also US-China trade tensions.

Secondly, there were a few differences between different countri es and different sub-regions.

The largest member economy was China and its growth rate was slowing down from 6.6 per cent last year, to 6.3 in 2019 and 6.1 per cent next year. 

“China’s growth is slightly moderating,” he said, “in contrast, the second largest economy - India – was 7.0 per cent last year, 7.2  per cent this year and next year 7.3 per cent,” Sawada said.

“Overall sub-regions’ growth rates are stable, or slightly moderating, but South Asia because of this strongest economy is now the fastest growing sub-region with growth accelerating.”

Sawada’s third major point was that “although we see rather robust growth of Asia continuing, prices seem to be under control and quite stable.

“The overall inflation rate this year is 2.5 per cent, 2.5 per cent last year and 2.5 per cent next year. 2.5 per cent is well below the past eight-year average of 3.2 per cent.

“So we can say that although growth is continuing in Asia and the Pacific inflation expectations are well under control.”

Sawada stated that while his first three messages said that although there were some differences in economies, the overall growth rate would continue and more than 60 per cent of global growth would be created by Asia.

“Asia will continue its status of global engine of growth.”

The clouds on the horizon, however, are the potential risks of prolonged tensions between US and China.

Sawada predicted there could be some trade shifting from China’s exports to the US and Asian economies which could be a positive.

“Overall the impact seems rather small, however prolonged uncertainty over US-China trade negotiations could itself generate consequences. Because of this uncertainty the private sector and business will take a wait-and-see strategy leading to slower investment and slower lower production and a potential slower growth rate.”

But he reiterated tensions between the USA and China seems to be a major risk to the Asian-Pacific economy.

“The medium-term risk we identify in this report is a disaster triggered by natural hazards.”

Sawada said the Asian region was subject to disasters - cyclones, typhoons, floods, earthquakes, volcanoes and epidemics.

“According to data the Asia region is disproportionately affected by different types of disasters. Over two decades, of every five disaster victims around the world four are people living in Asia. This documents how Asia is disproportionately hit by disasters.”

He said that controlling the damage caused by humans and nature are very important missions for governments and international organisations like the ADB.  “It is a challenge.”

Sawada said the region needed to build up resilience and invest in preventative measures and preparing for disasters, mobilising financial resources with more insurance and more capital market to reduce disaster risks.

“Setting up a framework to handle and cope with disaster is very critical for Asian nations to tackle medium-term risks.”

Focusing on the Pacific sub-region, Sawada said last year’s consolidated growth was a little slow with 0.9 per cent growth.

“This can maybe be attributed to disasters,” he said. “The largest in Pacific was when Papua New Guinea was hit by an earthquake and as a result the natural gas exports sector was affected.

“And Cyclone Gita hit Tonga - that was also a disaster affecting countries in the region. But this year PNG’s natural gas exports have seen a strong rehabilitation. Tonga has had contingent financing after Cyclone Gita - we dispersed US$6 ($9) million … that helped.

“This year has seen a strong bounce back. Consolidated growth for the region is 3.5 per cent and next year it is estimated at 3.2 per cent.”

Sawada noted: “So in general Pacific region disasters and shocks engineered by natural hazards are a really big challenge.

“Investing in controlling risk on one hand and preventative measures and also developing more risk financing schemes, including contingent financing, these are quite important policy instruments.”

Cook Islands News Acting Editor, Richard Moore in Nadi, Fiji.

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