ADB tips Pacific return to growth in 2021

Friday 30 April 2021 | Written by RNZ | Published in Pacific Islands, Regional

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ADB tips Pacific return to growth in 2021
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The Pacific's largest development bank claims the region is set to return to growth this year.

The Asian Development Bank (ADB) says Pacific member economies contracted by 5.8 percent in 2020 due to Covid-19 but it forecasts a recovery by year's end.

The ADB tips 1.4 percent growth but notes that is contingent on a return of tourism, a start of delayed construction, and the resumption of labour mobility and international trade.

But the bank's Pacific economist Rommel Rabanal said not every country will return to growth and that there are ongoing risks.

"Progress on national Covid-19 vaccination roll-outs as well as the uptake and sustainability of safe travel bubble arrangements," may temper the speed of growth said Rabanal.

"That being said, while we are forecasting a return to growth, this overall regional outlook still somehow masks some considerable variability in our country by country forecasts."

The bank's latest Asian Development Outlook (ADO) picks that the economies of half its regional members will shrink this year despite an overall return to growth.

Covid-19 is still a significant factor, said Rabanal, and continued border closures will drive weak economic performance this year.

"Particularly this is true for the smaller economies driven by tourism. So places like the Cook Islands, Palau, Samoa and to a lesser extent Tonga. And also those that are dependent on fisheries activity like the Marshall Islands and the Federated States of Micronesia."

The bank projects the Cook Islands economy will shrink by 26 percent this year before recovering in 2022 by 6 percent, driven largely by a safe two-way travel bubble with New Zealand and potentially Australia.

But economic recovery in the Pacific is largely contingent on the success of Covid-19 vaccination programmes this year.

Jabs reaching a critical mass of populations will allow borders to re-open and tourism, trade, labour mobility and construction to resume, said Rabanal.

The bank is pegging a region-wide return to growth of 3.8 percent next year after 1.4 percent this year.

Combined at 5.2 percent it almost claws back last year's Covid contraction of 5.8 percent.

The bank had forecast moderate growth of 2.5 percent this year from the region's largest economy Papua New Guinea. However, that expectation has been tempered by a recent surge in Covid-19 cases which threatens economic recovery along with the nation's health. Economic growth in PNG is predicted at 3 percent in 2022.

The region's second largest economy Fiji is also being hit by another surge of Covid-19. The bank had predicted moderate growth this year of 2 percent following last year's unprecedented 19 percent recession. An acceleration of predicted growth next year to 7.3 percent may be contingent on how well it responds to the current outbreak.

This highlights the importance of vaccination programmes to economic recovery and the ADB expects all member country inoculation programmes to be in full swing this year, said Rabanal.

"The progress that each country will have recorded then will be a big determinant of what the 2022 performance would be," he added.

"That will also include the possibility of opening up, initially to travel bubbles but maybe a broader re-opening can be achieved once the Covid-19 vaccinations reach a critical mass wherein herd immunity is quite achievable."

Once this is achieved said Rabanal, borders can re-open to allow trade, travel and tourism to stimulate economic recovery. It will also allow the bank to re-start key energy, transport and health infrastructure projects which have been delayed by the pandemic.

"The border closures have also impacted the pace and infrastructure and construction which for the smaller economies tends to be a major driver of growth," added Rabanal.

"Priorities remain, on a broad base, there are still the projects in energy, transport and water supply and sanitation but of course of focus on health.

"Health projects and health systems strengthening is also important moving forward just given the recent experience with the pandemic."

Pacific regional members of the ADB include the Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu and Vanuatu.