December Economic
The global economy was fraught with uncertainty throughout 2022. Despite this, inflation remained stubbornly high, instigating a series of aggressive rate hikes by most central banks and consequently tighter financial conditions across the globe. The opportunity cost of risking growth to tame inflation has resulted in a slower global growth forecast of 3.2 percent for 2022, with a growing share of countries experiencing a contraction.
In light of these developments, commodity prices remained volatile. Although oil output dropped, Brent crude oil prices plummeted to US$85.43 per barrel at the end of November on the back of the consistent rate hikes by the United States Federal Reserve (Fed), recession fears and slowing demand. Prospects that the Fed would be less aggressive in its November rate hike saw gold prices gain after seven months of consecutive declines. Sugar prices also picked up amid the tight global supply due to harvesting delays in key producing countries coupled with the announcement by India to cut its sugar export quota and better returns from diverting sugarcane to ethanol production. Overall, food prices1dipped to its lowest since January 2022 led by lower prices for dairy, cereal and meat products. In comparison to the international economy which was in shifting sands throughout the year, the domestic economy is making strides through the marked recovery in tourism. The influx of visitors up to November totaled 560,732, reaching 68.3 percent of the comparable 2019 period. At this rate, year-end visitor arrivals are expected to surpass the Macroeconomic Committee’s earlier prognosis of 581,000 visitors. The higher turnout in visitors together with increased spending has also boosted tourism receipts to $1,320.6 million, around 98 percent of the same period in 2019.
Sectoral performances, although varied, mirror the recovery in the domestic economy. Forestry sector output such as sawn timber (31.8%) and mahogany (16.1%) was upbeat in the year to November, despite the contraction in woodchips (-40.0%). The cane crushing season ended on a high note with sugar production2 (17.0%) bouncing back after two consecutive years of decline. Electricity generation (15.9%) rose to similar levels in November 2019 as economic activity gained momentum. However, gold production has been muted since the start of the year (-27.5% cumulative to November).
Annual inflation which has persisted above 5.0 percent since May 2022 moderated to 5.2 percent in November from 5.4 percent in the previous month but still higher than the 1.5 percent a year ago. Higher food and fuel prices were the major contributors to the inflation outcome over the year, both of which constitute a significant share of imported inflation which stood at 8.0 percent relative to domestic inflation of 4.4 percent. On a monthly basis, inflation declined for the third consecutive month to -0.2 percent.
The level of foreign reserves were comfortable at $3,426.3 million, (30/12), sufficient to cover 6.9 months of retained import cover, underpinned by higher tourism receipts, inward remittances and Government loan drawdown. Foreign reserves are anticipated to remain stable in the near to medium term.
Risks to the outlook mainly emanate from the external front. Domestically, natural disasters particularly during Fiji’s cyclone season could weigh significantly on economic outcomes.