SUVA, July 2 (Xinhua) -- The Fijian economy is expected to contract by 21.7 percent in 2020 mainly due to poor tourism activity and its knock-on effects on the rest of the economy.
In a statement which revises the growth projections for the Fijian economy, the Reserve Bank of Fiji (RBF), the nation's central bank, said on Thursday that the Fijian economy is projected to contract by 21.7 percent in 2020, the most severe contraction in the island nation's history.
The RBF said that the spill-over of the COVID-19 pandemic has trickled down to the domestic economy, given Fiji's interconnectedness to the global economy that is deeply dependent on the movement of goods and people.
As for the tourism industry, which accounts for around 35 percent of Fiji's GDP, the RBF said that it has been devastated by travel-related restrictions and the consequent halt in international tourism.
Visitor arrivals to the island nation are forecast to decline by 75 percent this year, with the flow-on effects bringing tourism-dependent sectors to a standstill. This has culminated in a spike in unemployment as many businesses have scaled back or shut down operations.
The retrenchment in consumption and investment activities along with the plunge in external trade will place additional downward pressure on the Fijian government's tax collections.
Against this backdrop, the central bank pointed out that the Fijian economy is projected to contract severely this year. In particular, the accommodation and food services, the transport and storage sectors will suffer the brunt of the contraction in visitor arrivals.
Protracted weaknesses in aggregate demand arising from reduced disposable incomes, increased unemployment, subdued business confidence and constrained fiscal space are expected to have a compounding effect on wholesale and retail trade, finance and insurance, construction, manufacturing, and the public administration and defense sectors.
Investment spending in the nation is also forecast to fall to around 12.8 percent of GDP, from an average of around 20 percent in the preceding three years. Private investment projects are likely to be halted or delayed, given the uncertainty surrounding the economic outlook and resumption of global travel while there will be challenges on the government-funded capital projects due to limited fiscal space.
The central bank said that the current forecast assumes that inbound travel to Fiji will return to some form of normalcy from the last quarter of 2020 and not revert to 2019 levels at least until 2023. Therefore, the recovery is expected to be gradual but contingent on the resumption of international travel.
Based on these assumptions, the Fijian economy is forecast to rebound and grow by 14.1 percent in 2021 and an additional 6.5 percent in 2022, the RBF said, adding that the economic recovery from 2021 may be higher if the deadly virus is contained this year.
Contrastingly, the economic downturn in Fiji may be deeper and the recovery more protracted if the virus containment stalls, the opening of travel bubbles is delayed to next year and travel appetite remains weak.
Inflationary pressures in Fiji remain contained and the inflation rate has been negative since October last year. Amid waning domestic demand and subdued global crude oil prices, the nation's inflation is forecast at 1 percent by end-2020 and increase to about 1.4 percent by end-2021, notwithstanding any major supply-side shocks. Enditem