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Quarterly update on the Fijian economy. The stage is set for a strong recovery this year.

Author: Krishal Prasad, Senior Economist, Westpac Fiji. Level 1, 1 Thomson Street, Suva, Fiji 

Phone: +679 9995184, Email: krishalprasad@westpac.com.au 

Read full report: WESTPAC WAVE Fiji Quarterly Economic Update (PDF 1MB)

 

Globally, central banks have again taken centre stage asserting their determination to respond to the inflation challenge that has now become a concern for many major economies. The focus is now on gradually winding back the extraordinary package of stimulus measures that was in place. The wider environment continues to be unsettled for markets as the threat and uncertainty around inflation and policy tightening combines with ongoing supply issues and geopolitical disruptions around Russia’s invasion of Ukraine. As such, a slower growth is now anticipated for the global economy.

In Fiji, timely indicators suggest an improvement in economic activity and stages the economy for a strong recovery this year. The underlying strength in the economy has been particularly evident in the tourism industry, where conditions are the most robust in the past two years. Strong labour demand and fiscal measures are supporting growth in household income, although recent large increases in food and energy prices are having some impact on household budgets. Nonetheless, the economy is forging ahead at an impressive pace on the back of reopening momentum.

As such, we expect the Fijian economy to make a broad-based recovery after the COVID-related contraction in 2020 and 2021 and forecast real GDP to expand by 12.9 percent through 2022, unchanged from our last economic update. The key dynamics shaping this outlook remain a spending catch-up by consumers and a strong tailwind from policy stimulus which is set to continue, with the 2022/23 National Budget delivering new spending initiatives.

For 2023, on the back of tourism activity gaining further momentum, spillover effects from the 2022/23 National Budget and with the assumption of a successful general election in Fiji, thereby boosting business and consumer confidence, we project a further 9.5 percent growth, slightly higher than the 9.3 percent projected earlier. We expect the economy to cool appreciably in 2024 with an output growth of 5.0 percent.

Consistent with the recovery in the domestic economy, financial sector outcomes have also improved. The central bank’s policy measures continue to support highly accommodative financial conditions system liquidity is at an all-time high with historic low interest rates. With the return of borrowing appetite and the expected pick up in commercial banks’ lending to private sector business entities, system credit growth will continue its steady growth trajectory.

Overall, while Fiji is adapting to a world with COVID-19 and has implemented strategies to normalise economic activity, challenges and risks remain. The Russia-Ukraine war has resulted in ongoing supplyside issues that could weigh heavily on business confidence and investment, and broadening price pressures could threaten real incomes and consumer demand. Natural disasters and the upcoming general election also pose some downside risk to the growth outlook and could derail the expected recovery of the Fijian economy. Nonetheless, for now Fiji is well placed for a double-digit growth outcome as it proceeds into the second half of 2022.

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