Economic growth expected to drop to 2.4 per cent

Monday December 30, 2019 Written by Published in Economy

Cook Islands’ economic growth is expected to plummet to an average of 2.4 per cent over the next four years, estimates the Ministry of Finance and Economic Management.

According to a report in the 2019/20 Half-Year Economic and Fiscal Update, the downturn is due to the capacity constraints experienced by the economy.

 

The update said economic growth is forecast to slow over the medium-term, following estimated real gross domestic product growth of 4.2 per cent in 2018/19.

“Strong economic growth in recent years has resulted in the Cook Islands experiencing a positive output gap, that is, economic growth has been larger than potential economic growth,” the update said.

“The result is that the Cook Islands economy is experiencing capacity constraints in many areas including labour (skilled and unskilled) and accommodation.”

Due to capacity constraints, the report said real growth was expected to decrease to an average of 2.4 per cent over the forward estimates (2020/21 to 2023/24) as it is anticipated that the constraints will place additional pressure on prices and limit the economy’s ability to experience the high growth rates of recent years.

As a result, forecast economic growth has been revised downwards in the Half-Year Economic and Fiscal Update as compared to the 2019/20 Budget, the report said.
The Cook Islands economy is driven mostly by tourism which contributes to about 60 to 70 per cent of the country’s gross domestic product.

Last year, visitor arrivals to the Cook Islands soared to an all-time high after the country welcomed 168,760 visitors to its shores. Visitor numbers increased by 4.4 percent in 2018 over the previous year.

Meanwhile revenue forecasts for 2019/20 and the forward years have been revised upward from those published in the 2019/20 Budget, despite economic growth being revised downwards.

The Half-Year Economic and Fiscal Update said this was due to two reasons:

“Revenue forecasts undertaken during the budget process were solely based on historical revenue, using univariate techniques, without direct consideration of the forecast levels of economic growth.

“Actual revenue collected in 2018/19 was above that forecast in the 2019/20 Budget.”

Forecasts are for tax revenue to remain strong over the forward estimates, averaging around two per cent growth over the coming four years.

 

 

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