Global 2019 Growth Remains Subdued: IMF

The commercial banks’ weighted average new lending rate fell to 5.88 per cent in January while new time deposit rate rose to 3.79 per cent
03 Mar 2019 14:57
Global 2019 Growth Remains Subdued: IMF

The global growth momen­tum is expected to remain subdued in 2019 following a downward revision to the global growth forecast by the Interna­tional Monetary Fund.

The downgrade is on the back of muted growth prospects for both advanced and emerging market & developing economies.

Downside risks remain such as the uncertainty of trade negotia­tions, downturn in financial mar­ket sentiments, geopolitical ten­sions and the pervasive effects of climate change.

Generally, movements in major global commodity prices trended upwards over the month in Janu­ary.

Brent crude oil prices rose owing to a cut in production.

Food Price

Food prices also increased at­tributed to higher prices of dairy, vegetable oil, sugar and cereals. In addition, gold prices rose due to weakened consumer sentiments in the United States (US) while supply setbacks in Brazil pushed up the sugar prices.

On the domestic front, secto­rial performances over the review month were mixed. Visitor arrivals noted an annual growth of 1.9 per cent in January, driven by higher tourist numbers from New Zealand (NZ), Japan, China, Canada, US and Hong Kong. Similarly, electric­ity production grew on an annual basis by 3.3 per cent of which 69.4 per cent was sourced from renew­able energy stations. Unfavourable weather conditions and accessibili­ty issues affected the timber indus­try outcomes in the first month of the year. Production of sawn tim­ber increased while pine log and woodchip production fell. Gold pro­duction was also affected in Janu­ary and noted a substantial decline of 33.3 percent.

Consumption activity also por­trayed mixed results in the review period.

Growth in new lending for


In January, commercial banks’ new lending for consumption pur­poses grew by 10.8 per cent, mainly supported by an increase in lend­ing to the wholesale, retail, hotels & restaurants sector.

However, in the same period, new and second-hand vehicle registra­tions (excluding Government vehi­cles) fell by 12.5 per cent and 2.4 per cent, respectively.

Food and Agriculture Organisa­tion’s Food Price Index.

Investment activity also revealed varied outcomes as suggested by partial indicators.

In January commercial banks’ new lending for investment pur­poses fell by 5.9 per cent under­pinned by a contraction in lending to both the real estate and building & construction sectors.

In addition, cement production and sales also dropped by 15.5 and 19.5 per cent respectively.

Nonetheless, ongoing private sec­tor projects and higher govern­ment capital expenditure alloca­tion are anticipated to provide impetus to investment/construc­tion sentiments going forward. La­bour market conditions remained favourable in January.

The Reserve Bank of Fiji’s (RBF) Job Advertisement Survey indi­cated an annual growth of 14.9 per cent in the number of jobs adver­tised led by higher recruitment in­tentions in the community, social & personal services and the finance, insurance, real estates & business services sectors.

Monetary conditions remain sup­portive of growth as private sector credit expanded by an annual 8.1 per cent in January.

Commercial bank loan

Commercial banks’ new loans grew by 1.5 per cent albeit lower than the 17.5 per cent growth last year.

The commercial banks’ weighted average new lending rate fell to 5.88 per cent in January while new time deposit rate rose to 3.79 per cent.

Liquidity, as measured by banks’ demand deposits (BDD), rose in January by 30.1 per cent to $398.1 million, led by an increase in for­eign reserves of $17.8 million cou­pled with declines in currency in circulation (-$45.5m) and statutory reserve deposits (-$0.5m).

As at February 27, BDD stood at $286.6 million.

Over the month of January, the Fiji dollar (FJD) appreciated against the US dollar (+1.5 per cent), Euro (+1.2 per cent) and the Japanese Yen (+0.2 per cent), but depreciated against the Australian (-1.3 per cent) and NZ (-1.2 per cent) dollars.

Over the year, the FJD strength­ened against the Australian dollar (+5.9 per cent), Euro (+2.7 per cent) and the NZ dollar (+1.1 per cent), but weakened against the US dollar (- 4.9 per cent) and the Yen (-4.8 per cent).

Nominal Effective Exchange Rate

Vol. 36 No. 02 month ended Febru­ary 2019, in January, the Nominal Effective Exchange Rate (NEER)2 index fell marginally by 0.05 per cent, but increased over the year by 0.6 per cent, suggesting a gen­eral strengthening of the domestic currency.

The Real Effective Exchange Rate (REER) appreciated slightly by 1.6 per cent in January due to a higher domestic inflation which suggests a loss in trade competitiveness.

The merchandise trade deficit4 widened by 20.4 per cent to $3,053.0 million in the year to November 2018, led by a higher increase in imports compared to exports.

Domestic exports declined slight­ly by 0.6 per cent in the same period led by lower exports of sugar and gold, while imports rose by 13.9 per cent on account of higher imports of machinery & transport equip­ment, mineral fuels, chemicals, crude materials and manufactured goods.

The NEER is the sum of the indi­ces of each trading partner coun­try’s currency against the FJD, ad­justed by their respective weights in the basket.

This index measures the overall movement of the FJD against the basket of currencies.

An increase in this index indi­cates a slight appreciation of the FJD against the basket of curren­cies and vice versa. Annual infla­tion stood at 5.1 per cent in Janu­ary, higher than the 4.9 per cent recorded in December 2018 and much higher than the 1.5 per cent registered in January 2018.

Higher annual price movements of yaqona, alcohol, tobacco, veg­etables and fuel contributed to this outcome.

Currently (01/03), foreign re­serves are $1944.9 million provid­ing 4.1 months of retained imports cover.

Taking into account the recent economic developments and the comfortable outlook for inflation and foreign reserves, the RBF Board left the Overnight Policy Rate unchanged at 0.5 per cent in February.

Source: Reserve Bank of Fiji


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