4.2% 2017 growth

HAVE BOOSTED DIS­POS­ABLE IN­COMES, A LOW IN­TER­EST RATE EN­VI­RON­MENT AND CON­TIN­UED RE­HA­BIL­I­TA­TION AC­TIV­ITY POST TC WIN­STON For 2018, the growth out­look has been re­vised up to 3.6 per­cent, from the 3 per­cent pro­jected ear­lier

Fiji Sun - - Nations - SOURCE: RE­SERVE BANK OF FIJI Source: Macroe­co­nomic Com­mit­tee Source: Re­serve Bank of Fiji

is largely driven by the pos­i­tive im­pact from fur­ther ex­pan­sion­ary fis­cal poli­cies , which have boosted dis­pos­able in­comes, a low in­ter­est rate en­vi­ron­ment and con­tin­ued re­ha­bil­i­ta­tion ac­tiv­ity post TC Win­ston.

Th e per­for­mance of an econ­omy is mea­sured by the growth rate of Real Gross Do­mes­tic Prod­uct (GDP). Real GDP mea­sures the value of all fi­nal goods and ser­vices pro­duced in a coun­try at a par­tic­u­lar pe­riod of time, ad­justed for price changes or in­fla­tion.

Broadly, it pro­vides im­por­tant in­for­ma­tion on the size of the econ­omy and whether it is grow­ing or shrink­ing.

When Real GDP growth is pos­i­tive, it in­di­cates that the econ­omy is per­form­ing well which means that busi­nesses are grow­ing, more jobs are be­ing cre­ated and peo­ple have more money in their pock­ets to spend. Con­versely, when the econ­omy is shrink­ing, it in­di­cates that fewer new jobs are cre­ated, hence less hir­ing and peo­ple have less money to spend.

This ar­ti­cle ex­plains how Fiji’s eco­nomic growth forecasts is un­der­taken with em­pha­sis on ex­pected growth for 2017 and ma­jor fac­tors un­der­pin­ning the re­cent up­ward re­vi­sion to the growth rate.

Fore­cast­ing GDP growth

Fiji’s GDP growth is fore­casted twice in a year, in April and Oc­to­ber. The in­di­ca­tors used to fore­cast growth are aligned to the method­ol­ogy em­ployed by the Fiji Bureau of Sta­tis­tics with rel­e­vant data ob­tained from var­i­ous sources in­clud­ing the pub­lic sec­tor es­pe­cially the Min­istry of Econ­omy, other Gov­ern­ment min­istries and statu­tory bod­ies and the pri­vate sec­tor.

Par­tial in­di­ca­tors of eco­nomic ac­tiv­ity such as in­vest­ment and con­sump­tion, re­tail sales and busi­ness sen­ti­ment sur­veys and in­for­ma­tion gath­ered from in­dus­try meet­ings are also used to fore­cast growth.

The growth forecasts are pre­pared by a sub-Macroe­co­nomic Tech­ni­cal Com­mit­tee be­fore they are de­lib­er­ated on by the Macroe­co­nomic Tech­ni­cal Com­mit­tee and fi­nally ap­proved by the Macroe­co­nomic Com­mit­tee. The broad mem­ber­ship of the com­mit­tee en­sures that the forecasts are widely and thor­oughly scru­ti­nized to pro­duce pro­jec­tions that are ro­bust, un­bi­ased and cred­i­ble.

There­fore, the growth fore­cast is a re­sult of rig­or­ous and metic­u­lous pro­cesses in­volv­ing many tech­ni­cal per­son­nel span­ning sev­eral gov­ern­ment agen­cies as well as vir­tu­ally the en­tire cen­tral bank. No other agency in Fiji un­der­takes such a com­pre­hen­sive review of the econ­omy.

Fiji’s Eco­nomic Struc­ture

To bet­ter ap­pre­ci­ate the driv­ers of growth in any econ­omy, it is first im­por­tant to un­der­stand the struc­ture of the econ­omy. For ex­am­ple, a sec­tor that ac­counts for 30 per cent of the econ­omy will con­trib­ute far more to the eco­nomic growth (or con­versely to the con­trac­tion) than a sec­tor that just ac­counts for 5 per­cent of the econ­omy.

The struc­ture of Fiji’s econ­omy has evolved over the years (Graph 1). In 2016 (2011 base), eco­nomic ac­tiv­ity was dom­i­nated by the ser­vice sec­tor with a weight of 68.6 per­cent fol­lowed by the in­dus­try (20.5 per cent) and pri­mary (10.9 per cent) sec­tors.

This com­pares with a lower share of the ser­vices sec­tor (58.4 per cent) and the higher shares for the in­dus­try (22.8 per cent) and pri­mary (18.8 per cent) sec­tors two decades ago (1995 base), re­flect­ing the rel­a­tively lower share of ser­vices re­lated out­put to the econ­omy then. The share of the agriculture sec­tor in the econ­omy, in par­tic­u­lar has de­clined from 15.7 per cent to 8.2 per cent dur­ing the same pe­riod.

2017 Growth Fore­cast

The Fi­jian econ­omy is fore­cast to regis­ter its eighth con­sec­u­tive year of growth in 2017 (Graph 2). The up­ward growth re­vi­sion to 4.2 per cent from 3.8 per cent is largely driven by the pos­i­tive im­pact from fur­ther ex­pan­sion­ary fis­cal poli­cies , which have boosted dis­pos­able in­comes, a low in­ter­est rate en­vi­ron­ment and con­tin­ued re­ha­bil­i­ta­tion ac­tiv­ity post TC Win­ston. For 2018, the growth out­look has been re­vised up to 3.6 per­cent, from the 3 per­cent pro­jected ear­lier.

Driv­ers of Growth

The ma­jor sec­tors un­der­pin­ning the higher growth fore­cast for 2017 are en­vis­aged to be the ser­vice and in­dus­try sec­tors led by pub­lic ad­min­is­tra­tion and de­fence, man­u­fac­tur­ing, con­struc­tion, whole­sale and re­tail, ac­com­mo­da­tion, fi­nance, ed­u­ca­tion and health (Graph 3).

On the down­side, the agriculture sec­tor is fore­cast to regis­ter a lower growth this year as it re­mains on a re­cov­ery path fol­low­ing the dev­as­ta­tion from TC Win­ston and floods, and the pro­longed dry weather spell which af­fected cane out­put. In ad­di­tion, the per­for­mance of the cane and sugar sec­tor con­tin­ues to be af­fected by labour short­ages es­pe­cially dur­ing the har­vest­ing sea­son, ag­ing farm­ers and in­creas­ing costs of farm­ing.

Sim­i­larly, the forestry sec­tor is en­vis­aged to de­cline this year un­der­pinned by lower ma­hogany pro­duc­tion associated with the long-stand­ing li­cens­ing is­sue in the in­dus­try.

Fol­low­ing the with­drawal by Sus­tain­able Ma­hogany In­dus­tries Limited in May 2016 which neg­a­tively im­pacted the sec­tor, the is­sue of new li­censes to 13 new com­pa­nies on 1 Septem­ber 2017, is ex­pected to fa­cil­i­tate a re­turn to higher lev­els of ma­hogany pro­duc­tion from next year on­wards.

Graph 3: Sec­tor Con­tri­bu­tions to 2017 Growth

Over­all, the favourable growth out­look is sup­ported by higher ag­gre­gate de­mand boosted by up­beat con­sumer and busi­ness con­fi­dence. Con­sump­tion and in­vest­ment ac­tiv­ity are ex­pected to ex­pand fur­ther this year sup­ported by higher bank lend­ing to the pri­vate sec­tor which is re­flec­tive of the con­tin­ued ac­com­moda­tive mon­e­tary pol­icy, am­ple bank­ing liq­uid­ity and low in­ter­est rates.

More­over, in­flows of in­ward re­mit­tances, in­creased in­come lev­els as in­di­cated by the Pay As You Earn col­lec­tions and favourable labour mar­ket con­di­tions con­tinue to sup­port con­sumer spend­ing.

Con­clu­sion

Over­all, the strong eco­nomic growth mo­men­tum con­tin­ues to be broadly sup­ported by sta­ble macroe­co­nomic poli­cies and grow­ing busi­ness and con­sumer op­ti­mism. Like any other fore­cast, ac­tual growth out­turns do de­vi­ate from forecasts due to rea­sons such as lack of timely data, in­com­plete in­for­ma­tion and un­ex­pected out­comes.

As such, the Macroe­co­nomic Com­mit­tee will con­tinue to en­hance its fore­cast­ing pro­cesses to en­sure that fore­cast vari­ances are min­imised.

Sources: Fiji Bureau of Sta­tis­tics and Macroe­co­nomic Com­mit­tee

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