Fiji’s Economic Review as of December, 2018

The Fijian economy is envis­aged to grow above 3.0 per cent over the medium term. Growth will continue to be sup­ported by robust consumption and public spending and further im­provement
01 Jan 2019 11:00
Fiji’s Economic Review as of December, 2018

The Fijian economy is envis­aged to grow above 3.0 per cent over the medium term.

Growth will continue to be sup­ported by robust consumption and public spending and further im­provement in private investment spending post elections.

Industries performance

Sectoral performances havse been generally positive this year.

Amongst the major industries, cane production increased annual­ly by 3.1 per cent as at December 17, but sugar production declined (-11.5 per cent) due to low cane quality.

Sawn timber and woodchips ad­vanced further till November while mahogany production rose cumula­tive to October despite accessibility issues.

Industrial production declined marginally (-1.2 per cent) in the first half of the year.

However, excluding sugar it noted a growth (2.5 per cent).

Domestically, aggregate demand has remained firm during the year.

In the year to October, partial in­dicators of consumption such as new consumption lending (+16.6 per cent), new vehicle registrations (+12.4 per cent), second hand vehi­cle registrations (+13.9 per cent) and Net VAT collections (+7.0 per cent) noted annual gains.

Investment results

Partial indicators for investment continue to show mixed results.

While lending for investment rose (+1.9 per cent) up to October, ce­ment production (-15.8 per cent) and sales (-27.2 per cent) fell due to transportation setbacks.

The deceleration in credit growth has turned around.

Growth in private sector credit rose to 8.7 per cent in October after falling to a low of 5.6 per cent in July.

Similarly, growth in commercial banks new lending increased to 9.5 per cent from 8.7 per cent a year ago.

Commercial banks performance

Commercial banks’ outstanding and new time deposit rates have edged-up over the year while out­standing and new lending rates continued to nudge slightly lower in October.

Liquidity in the banking system (measured by banks’ demand de­posits) has been declining in line with the fall in foreign reserves.

At the end of November, liquidity was $366.5 million and fell further $308.0 million by December 24.

Over the month of November, the Fiji dollar strengthened against the Yen (+2.3 per cent), US dollar (+1.8 per cent) and Euro (+1.5 per cent), but weakened against the New Zea­land (-2.6 per cent) and Australian dollar (-1.1 per cent).

Annually, the Fiji dollar appre­ciated against the Euro (+2.7 per cent) and Australian (+2.0 per cent) dollar but was lower against the US (-1.5 per cent), NZ dollar (-0.9 per cent) and the Yen (-0.1 per cent).

Nominal Effective Exchange Rate (NEER)

The Nominal Effective Exchange Rate (NEER) 5 index increased over the month (+0.1 per cent) and over the year (+0.9 per cent) indicating a general strengthening of the Fiji dollar.

In contrast, the Real Effective Ex­change Rate (REER) fell over the month (-0.8 per cent) but gained (+4.5 per cent) over the year due to higher domestic inflation compared to trading partners’ inflation.

Inflation Rate

Annual headline inflation was 5.2 per cent in November, unchanged from October. Higher prices were noted for alcohol, tobacco, kava, fuel and vegetables.

However, over the month consum­er prices declined by 0.3 per cent, led by food and non-alcoholic bever­ages.

Foreign reserves (RBF Holdings) are currently $2,009.3 million (31 December) and sufficient to cover 4.4 months of retained imports of goods and services.

Global growth

Global growth is projected at 3.7 per cent for both 2018 and 2019.

However, major global economies noted a slowdown in the second half of the year due to a combina­tion of internal and external fac­tors with the notable exception of the United States (US).

Growth in the US remained solid led by private spending while lower consumption, higher oil prices and concerns regarding Brexit affected economic conditions in Europe.

In Asia, the Japanese economy contracted in the third quarter due to a series of natural disasters while China continued to grapple with the ongoing trade impasse with the US.

Rising oil prices and the subse­quent slowdown in consumption affected output in India.

Closer to home, the Australian economy slowed in the third quar­ter due to falling house prices, tight­ening financing conditions and sluggish wage growth while New Zealand has been affected by higher oil prices and stagnant activity in the construction sector.

Global commodity price move­ments were mostly on the down­side in November as oil, sugar and food prices declined while only gold price increased.

The large (-18.2 per cent) decline in world market crude oil price in November was slightly reversed by mid-December as prices rose to US$60.251, after major producers agreed to cut production to arrest the plummeting prices.

Future prices for the first quarter of 2019 average around similar lev­els.

Sugar prices continue to fall re­sulting from weak demand in India as it heads into winter while gold prices shot up due to increased in­vestor demand as well as the start of the wedding season in India.

Source: Reserve Bank of Fiji


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