Dramatic economic growth forecast for Pacific

With the United Nations predicting “dramatic growth” for the Pacific region, most developing island economies will not feel the benefits of such fiscal expansion.

In its latest report - Economic and Social Survey of Asia and the Pacific 2014: Year-end Update, the agency’s Economic and Social Commission for Asia and the Pacific (E.S.C.A.P.) reports that regional expansion is expected to double when compared to 2014.

The agency reports that this sharp increase is led by Papua New Guinea.

“The subregion is expected to expand by 10.1 per cent compared to 5.9 per cent in 2014,” its report reads.

“Growth in Papua New Guinea is forecast to increase to 15.5 per cent from 8.4 per cent in 2014 due to the commencement of liquefied natural gas (L.N.G.) production and export.

“The economy expanded above expectations in 2014 primarily on the back of early commencement of L.N.G. production, combined with the Government’s expansionary fiscal policy.”

The report states the outlook for economic expansion for Papua New Guinea in the next few years remains broadly steady, with the mineral sector contributing to the countries double-digit G.D.P. growth.

However, according to E.S.C.A.P., Samoa’s growth is not even close to what Papua New Guinea’s is. According to the report Samoa’s G.D.P. is predicted to expand by 2.5 per cent, which will be accompanied by 2.0 per cent increase in inflation.

So what does this mean?

Investopedia says economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another.

“Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation,” the site reads.

“For comparing one country's economic growth to another, G.D.P. (Gross Domestic Product) or G.N.P. (Gross National Product) per capita should be used as these take into account population differences between countries.”

U.S. Economist Kimberly Amadeo says the G.D.P. growth rate measures how fast the economy is growing. It does this by comparing one quarter of the country's economic output, G.D.P., to the last.

“The G.D.P. growth rate is the most important indicator of economic health,” she said. “When the economy is expanding, the G.D.P. growth rate is positive. “If it's growing, so will business, jobs and personal income.”

She said if the G.D.P. growth rate was slowing down, then businesses will hold off investing in new purchases and hiring new employees, waiting to see if the economy will improve.

“This, in turn, can easily further depress the economy and consumers have less money to spend on purchases,” sad Ms. Amadeo.

“If the G.D.P. growth rate actually turns negative, then the country's economy is heading towards or is already in a recession.”

United Nations Under-Secretary- General and E.S.C.A.P. Executive Secretary Dr. Shamshad Akhtar said despite the above improved prospects many developing economies in the region face structural constraints, which have kept them from realising their growth potential.

“Infrastructure shortages remain acute and growth has not translated into enough decent jobs,” Dr. Akhtar said.

Furthermore, the agency reports that the steep decline in oil prices in recent months may be the start of a longer-term trend and will have a significant, yet varying impact across the region, the agency reports.

It says the Year-end Update estimates that for energyimporting countries, a $10 per barrel fall in the oil price in 2015 would translate into an increase in G.D.P. growth of up to 0.5 percentage points.

The Agency says that developing countries in the region need to bridge physical and social infrastructure gaps that need an annual investment of $815 billion, according to the Year-end Update.

“It outlines ways to increase infrastructure financing and recommends labour market reforms to increase decent job opportunities,” E.S.C.A.P. reports.

“Declining global oil prices are a valuable opportunity for Asia- Pacific economies to reduce fuel subsidies that account for a large share of national budgets in many countries in the region.

“Regressive fossil fuel subsidies more often benefit the rich and have little impact on reducing poverty.

“The savings from a cut in these could be better invested into more productive and inclusive development, says the report.”

For example, E.S.C.A.P. estimates that savings from energy subsidies could, for example, finance the provision of income security to all elderly and persons with disabilities as well as universal access to health and education in Indonesia, Malaysia, Philippines and Thailand.

“This is a particularly critical and opportune time to decrease subsidies,” Dr. Akhtar said.

“Reducing subsidies can raise significant public financial resources for productive investment in the region and could make needed funds available for financing sustainable development.”