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The Pacific is forecast to return to positive growth in 2021, according to a new report by the Asian Development Bank (ADB) released today.
But the region’s outlook remains subject to significant risks, and there is considerable variability across the 14 Pacific developing member countries (DMCs). The DMC economies were estimated to have contracted by 5.8% in 2020 as the coronavirus disease (COVID-19) pandemic directly impacted tourism and trade flows and affected construction activity, according to the Asian Development Outlook (ADO) 2021, ADB’s flagship economic publication. Recovery of 1.4% is forecast for 2021, contingent on improvements in tourism numbers, commencement of delayed construction projects, and resumption of labor mobility and cross-border trade.
“The start of the COVID-19 vaccine rollouts, both within Pacific DMCs and among their trade and tourism partner countries, indicate some economic recovery is likely in 2021,” said ADB Director General for the Pacific Leah Gutierrez. “However, risks to the recovery remain, particularly in tourism-oriented economies that are feeling the heaviest impacts of the pandemic crisis.”
Overall growth in the Pacific subregion this year is likely to be held back by contractions in smaller tourism-dependent economies, including the Cook Islands, where gross domestic product is expected to fall by more than a quarter; Palau, one of the most tourism-dependent economies in the world; Samoa; and, to a lesser extent, Tonga. Travel bubbles are projected to contribute to a gradual recovery in these economies, initially in the Cook Islands and Niue with New Zealand, and Palau with Taipei, China. Overall, growth for the Pacific is expected to improve to 3.8% in 2022.
The ADO projects the Cook Islands economy to contract by 26% in 2021 before recovering to growth of 6% in 2022 with the opening of a proposed travel bubble with New Zealand. Samoa’s economy is likewise forecast to contract by 9.2% in 2021 before recovering to 3.1% growth in 2022 once full vaccine coverage is achieved and international travelers are able to return. In Tonga, the impact of the twin shocks of Tropical Cyclone Harold and the COVID-19 pandemic in early 2020 will continue to constrain the construction and tourism sectors, contributing to a 5.3% contraction in 2021. The ADO projects the Tongan economy to return to positive growth, by 1.8%, in 2022.
Papua New Guinea (PNG), the biggest economy in the Pacific, is expected to grow moderately at 2.5% in 2021 as it recovers from a pandemic-induced recession in 2020. However, a recent surge in COVID-19 cases threatens prospects for economic recovery. Development partners are assisting with budgetary support and the delivery of COVID-19 vaccinations. Economic growth in PNG is projected to accelerate to 3% in 2022.
Fiji, the subregion’s second-largest economy and one heavily dependent on tourism, is similarly forecast to expand in 2021, by 2.0%, following an unprecedented 19.0% contraction last year. Fiji’s economy is projected to grow further by 7.3% in 2022, assuming a recovery in tourism from effective vaccination programmes both domestically and in its major tourist markets. Revived tourism would mitigate some of the impact of COVID-19, but it may take several years for the economy to return to pre-pandemic levels.
The ADO expects the Solomon Islands economy to recover, growing by 1.0% in 2021 and 4.5% in 2022, as fishing and construction rebound. The construction and related sectors are expecting a boost from work on public infrastructure projects, including the Tina River Hydropower Project, upgrades to transport, the rehabilitation and expansion of water supply and sanitation systems, and construction for the 2023 Pacific Games. Logging output is expected to continue to decline, reflecting government efforts to improve sustainability.
Vanuatu’s economy contracted in 2020 from the effects of the trade and travel restrictions caused by COVID-19 and Cyclone Harold. With growth of 2.0% in 2021 and 4.0% in 2022, a cautious recovery is expected as these restrictions are gradually lifted. However, this will depend on a successful vaccination rollout and establishment of travel bubbles with Vanuatu’s main tourism markets.
Economic decline in the North Pacific—Federated States of Micronesia (FSM), the Marshall Islands, and Palau—is forecast to continue in 2021, with negative growth of 1.8% for FSM, 1.4% for the Marshall Islands, and 7.8% for Palau. But these contractions are expected to be more muted compared to 2020, as the ongoing COVID-19 vaccine rollout eases pandemic-related border restrictions that stalled international tourism and impeded trade. The ADB report projects a return to growth for all three North Pacific economies in 2022 (2.0% for the FSM, 2.5% for the Marshall Islands, and 10.4% for Palau) as restrictions are eased further and more business activity resumes.
Although free of COVID-19 infections so far, the Central Pacific economies of Kiribati, Nauru, and Tuvalu saw economic expansion slow in 2020 as trade and travel restrictions delayed infrastructure projects. In 2021, growth is expected to improve by 1.5% in Nauru and by 2.5% in Tuvalu as these projects resume. Kiribati will see a small contraction of 0.2% due to continued restrictions on the movement of goods and people while the country awaits the arrival of COVID-19 vaccines. In 2022, the ADO expects construction activity to help Kiribati return to economic expansion, of 2.3%, while Tuvalu will see growth rise to 2.0%. Growth in Nauru is forecast to moderate at 1.0% in 2022 with the impending closure of the Regional Processing Centre in 2021.
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