November Economic Review

Globally, economic activity is expected to pick-up in the near-term as most advanced and emerging market economies are projected to sustain the current momentum or accelerate growth. The uptick in
03 Dec 2017 11:00
November Economic Review
Reserve Bank Of Fiji

Globally, economic activity is expected to pick-up in the near-term as most advanced and emerging market economies are projected to sustain the current momentum or accelerate growth.

The uptick in consumer demand, recovering non-residential investment and faster growth in exports supported overall activity in the United States.

Similarly, surging credit growth and recent increases in manufacturing activity underlied the strong recovery in the Euro zone and Japan.

While China performed strongly due to healthy external demand, the Indian economy recovered from a weak start earlier in the year.

Closer to home, the Australian economy is showing signs of slowing heading into Quarter 4, 2017 while expansion in New Zealand is expected to gain momentum despite a few setbacks related to the recently concluded National Elections.

Domestically, the Fijian economy is expected to grow by 4.2 per cent in 2017 after expanding by 0.4 per cent last year.

Recent indicators point to mixed sectoral performances.

Positive outturns were noted for the cane and sugar sectors as of November while electricity and fish production expanded in the year to October.

Visitor arrivals also increased by 6.6 per cent in the year to October underpinned by strong growth in tourist arrivals from New Zealand and the US.

On the downside, output in the cement, gold and timber industries contracted cumulative to October.

Aggregate demand remains firm reflected in favourable outturns for consumption and investment indicators.

Consumer spending continues to trend upwards supported by higher incomes, favourable labour market conditions and accommodative monetary conditions.

New lending for consumption purposes rose in the first ten months of the year underpinned by higher lending to the wholesale, retail, hotels and restaurants sector.

Similarly, net Value Added Tax collections grew cumulative to September indicating strong underlying demand.

Although the increase in the income tax threshold resulted in a slower growth for Pay As You Earn collections since August, it bodes well for future consumption activity.

Investment levels remained positive as indicated by partial indicators.

Commercial banks’ new lending for investment purposes rebounded strongly cumulative to October driven by higher lending to the real estate and building and construction sectors.

Similarly, domestic cement sales grew in the same period, owing to a rise in local construction activity.

The commissioning of new private sector projects together with the continued rehabilitation work post-Tropical Cyclone Winston and Government’s increased capital expenditure augurs well for investment outcomes going forward.

Labour market conditions remain favourable.

Higher recruitment intentions in the community, social and personal services; wholesale and retail trade and restaurants and hotels; electricity and water and mining and quarrying sectors underpinned the annual growth in the number of jobs advertised, cumulative to October 2017.

Going forward, employment prospects remain largely positive and will be supported by the strong growth momentum.

Monetary conditions are conducive to growth and the financial system is stable.

Lending rates currently hover at low levels after declining over the year while time deposit rates have increased relative to the same period last year.

Domestic credit slowed further in the review period owing to a deceleration in private sector credit which was attributed, in turn, to the slowdown in commercial bank lending to the building and construction and private individuals sectors.

Evidently, total commercial banks’ lending grew at a slightly lower pace in the year to October compared to the corresponding period in 2016.

Despite falling over the month of November, liquidity in the banking system remains adequate to cater for an upswing in credit.

As at November 30, liquidity stood at $689.5 million.

In October, the Fiji dollar rose against the Australian and the New Zealand dollars, but fell against the US dollar, Yen and the Euro.

Reflecting the general weakening of the Fiji dollar against major trading partner currencies, the Nominal Effective Exchange Rate (NEER) index fell in October.

Although domestic inflationary outcomes were higher than trading partners, the weaker Fiji dollar led to the decline in the Real Effective Exchange Rate (REER) over the review month.

Inflation rose to 2.6 per cent in October from 2.0 per cent in September, but remained lower than the 4.7 per cent registered a year ago.

Higher annual price movements in the alcoholic beverages, tobacco and narcotics category mostly contributed to this outcome.

The 2017 year-end forecast for inflation is 2.5 per cent.

Exports, based on the Overseas Exchange Large fell by 3.7 per cent cumulative to October 2017, compared to the same period in 2016.

The decline was mainly led by lower receipts for sugar, gold and timber which more-than-offset the increase in the exports of mineral water and fish.

However, imports rose marginally over same period due to increases in food and fuel payments.

Moving forward, reining in the trade deficit, raising tourism earnings and remittances as well attracting foreign direct investment is key to safeguarding external stability.

Foreign reserves fell over the month of November to $2,311.4 million, sufficient to cover 5.5 months of retained imports of goods and non-factor services (MORI).

As at December 1, foreign reserves were $2,310.1 million, sufficient to cover 5.5 MORI and are forecast to remain at comfortable levels by year end.

Given the comfortable outlook for both foreign reserves and inflation, the Reserve Bank maintained an accommodative monetary policy stance, and kept the Overnight Policy Rate unchanged at 0.5 per cent in November.


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