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The Domestic Economy 10 RESERVE BANK OF FIJI QUARTERLY REVIEW June 2017 Private Mail Bag, Suva, Republic of Fiji Telephone: (679) 331 3611, Facsimile: (679) 330 2094, Email: info@rbf.gov.fj Website: http://www.rbf.gov.fj RBF Quarterly Review June 2017 QUARTERLY REVIEW OF THE ECONOMY & FINANCIAL CONDITIONS Overview 3 The International Economy 4 International Economic Conditions 4 The Domestic Economy 10 Domestic Economic Conditions 10 Production 10 Consumer Spending 12 Investment 12 Public Finance 13 Labour Market 13 Inflation 13 The External Sector 14 Domestic Financial Conditions 15 Money Markets 15 Bond Market 15 Foreign Exchange Markets 16 Financial Intermediaries 16 Banking Industry Quarterly Condition Report - March 2017 18 Insurance Industry Quarterly Condition Report - March 2017 27 Capital Markets Quarterly Performance Report - March 2017 32 For the Record RBF Announces Launch and Issuance of Circulation Notes and Coins Commemorating Fiji Rugby 7s Gold Medal Win at the Rio 2016 Olympics 37 $7 Banknotes and 50 Cents Coins Officially Unveiled 38 Revised Growth Projections for 2017 - 2019 42 Monetary Policy Stance Remains Unchanged 44 RBF Acknowledges the Role of Fintech in Enabling Innovative Financing 45 Monetary Policy Stance Remains Unchanged 46 Statistical Annex 47 Reserve Bank of Fiji Publications 49 RBF Quarterly Review June 2017 OVERVIEW The International Monetary Fund (IMF) in million in June from $470.8 million in its latest July World Economic Outlook March led by an increase in foreign (WEO) maintained its global growth reserves. projection for 2017 and 2018 at 3.5 percent and 3.6 percent, respectively, as Latest Overseas Exchange Transactions global recovery remained on track. (OET) trade data revealed that both Growth prospects for emerging market exports and imports declined by 9.7 and developing economies (EMDEs) in percent and 2.3 percent, respectively, 2017 have been revised upward to 4.6 cumulative to June this year. This led to a percent on expected acceleration in widening of the trade deficit by a marginal economic activities. Despite the improved 0.4 percent to $1,129.7 million in the same forecasts in major advanced economies period. such as Japan and the Euro zone, overall growth for advanced economies remained Headline inflation fell to 2.0 percent in unchanged at 2.0 percent for this year. June from 5.6 percent in March. This outcome was on account of lower prices of On the domestic front, the Fijian economy food & non-alcoholic beverages; health; is anticipated to grow for the eighth recreation & culture; clothing & footwear; consecutive year in 2017. The broad communication and miscellaneous goods based projected growth of 3.8 percent is & services categories. The year-end expected to be underpinned by the forecast remains at 3.0 percent. manufacturing; financial & insurance activities; construction; wholesale & retail The Reserve Bank of Fiji’s (RBF) trade and the transport & storage sectors. holdings of foreign reserves rose to Aggregate demand, as revealed by partial $2,283.2 million at the end of June, indicators remained firm, supported by sufficient to cover 5.7 months of retained favourable consumption and investment imports (MORI) of goods and non-factor activities. services, up from $1,977.5 million (4.9 MORI) at March end. Monetary conditions remained supportive of domestic economic activity in the The RBF kept the Overnight Policy Rate June quarter. Growth in private sector (OPR) unchanged at 0.5 percent in the credit continued on an upward trend so second quarter of the year, in line with the far this year sustained by commercial positive developments in the international banks’ lending and generally low interest and domestic economies and the rates. Total liquidity in the banking favourable outlook on the Bank’s system improved significantly to $735.8 monetary policy objectives. 3 RBF Quarterly Review June 2017 THE INTERNATIONAL ECONOMY International Economic Conditions Economic growth in the US has been lowered for the year due to weak Recovery in the global economy remained performance in the March quarter. firm, attributed to higher growth outcomes Similarly, the markdown for 2018 was in large EMDEs such as Brazil, China and based on the assumption that fiscal policy Mexico as well as in several advanced1 will be less expansionary than anticipated economies. Additionally, expansion in in April. However, economic outlook for industrial output, manufacturing and the Euro zone and Japan have improved global trade signal sustained strength for following positive performances in late the rest of the year. Oil prices declined on 2016 and early this year. China remains increased United States (US) supply while on track towards an improved growth inflation softened as the impact of a forecast in 2017 backed by stronger March commodity price rebound since the second quarter performance as well as expected half of 2016 waned. Given these positive continuation of fiscal support. developments, the IMF in its July WEO maintained its global growth forecast for Key downside risks over the short-term 2017 and 2018 at 3.5 percent and 3.6 are broadly balanced while medium-term percent, respectively (Graph 1) while risks including policy uncertainty (via global growth in 2016 is now estimated at unpredictable US regulatory & fiscal 3.2 percent, up from 3.1 percent in April. policies and negotiations over post-Brexit The slightly upward biased performance arrangements), financial tensions (China’s last year reflected the higher growth in inability to address financial sector risks Iran and stronger economic activity in could lead to an abrupt slowdown) & India. volatility (normalisation of the US monetary policy could tighten global Graph 1 financial conditions and divert capital World GDP Growth Rates flows from emerging economies) and non- Percent 2 6 economic factors, may potentially derail the global growth outlook. 5 4 The US economy grew by a slower 1.4 3 percent in the March quarter following an expansion of 2.1 percent in the December 2 2016 quarter. This was led by downturns 1 in private inventory investment and 0 government spending which were partly 2010 2011 2012 2013 2014 2015 2016(e) 2017(f) 2018 (f) offset by increased consumer spending and exports. Source: IMF WEO-July 2017 2 This includes rising geopolitical tensions, domestic 1 This includes Canada, France, Germany, Italy and political discord as well as shocks arising from Spain. weak governance can hinder economic activity. 4 RBF Quarterly Review June 2017 Recent data suggests a rebound in Latest economic data suggests positive business activity supported by the services outcomes for the region as business sector which more-than-offset the weak confidence remained broadly stable in manufacturing output. Industrial May with continued expansion in business production rose for the fourth consecutive activity supplemented by growth in month in May backed by higher mining output, new orders and strong job creation output. Similarly, consumer confidence in the manufacturing sector. Consumer increased in June, albeit moderately as confidence remained low despite expectations for the economy remained improving slightly in May. upbeat. On the external front, the US trade deficit widened in April due to a rise The unemployment rate fell to 9.3 percent in imports and a fall in exports. in April from 9.4 percent in March, attributed to the decline in the number of Labour market conditions improved in persons unemployed. The region’s trade May with the unemployment rate falling surplus narrowed in April as exports fell to 4.3 percent from 4.5 percent in March. and imports rose. Annual inflation eased Similarly, consumer prices eased to 1.9 to 1.4 percent in May from 1.5 percent in percent in May from 2.4 percent in March, March due to a slowdown in energy, food, on a slowdown in energy costs. alcohol and tobacco prices. Given the strengthening labour market In light of these developments and conditions and reasonable increase in continued risks from external and political economic activity, the Federal Reserve uncertainties, the European Central Bank raised the target funds rate to 1.00-1.25 (ECB) maintained its interest rates on the percent in June from 0.75-1.00 percent in refinancing operations, marginal lending March. In addition, the Fed is set to and deposit facility at zero percent, 0.25 normalise its balance sheet through a percent and -0.40 percent, respectively. reduction in its US$4.5 trillion portfolio of These rates are expected to continue for an treasury bonds and mortgage-backed extended period of time. In terms of the securities. non-standard monetary policy measures, from April this year, the ECB will However, the deceleration in March continue with its monthly net asset quarter performance has led the IMF to purchases (currently at the pace of €60b) lower its US growth forecast to 2.1 until a sustained inflation path that is percent in 2017 and 2018 from 2.3 percent consistent with its target is achieved. and 2.5 percent, respectively in April. Inflation is expected to be at 2.7 percent in Overall, the IMF in its July WEO Update 2017 and 2.4 percent in 2018. expects the Euro zone to grow by a higher 1.9 percent and 1.7 percent in 2017 and The Euro zone economy expanded by 2018, respectively based on improved 0.6 percent in the March quarter, slightly March quarter performance in the region’s higher than the 0.5 percent growth in major economies of France, Germany, the preceding quarter, backed by further Italy and Spain. Inflation is forecasted at pick-up in fixed investment and household 1.7 percent for 2017 and 1.5 percent in consumption. 2018. 5 RBF Quarterly Review June 2017 The Japanese economy expanded by 0.3 The positive economic performance of the percent in the March quarter, unchanged Japanese economy in late 2016 has led the from the December quarter.
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