Pacifi c Economic Monitor BUDGET ANALYSIS December 2015 www.adb.org/pacmonitor The Monitor provides an update of developments in Pacifi c economies and explores topical policy issues. TOURISM TO THE PACIFIC Contents TRENDS AND OUTLOOK VISITOR ARRIVALS: Highlights 1 AUSTRALIA 10% GROWTH FOR The economic setting 3 PACIFIC IN 2015 Country updates 5 Policy briefs EUROPE Tourism trends and forecasts for the Pacifi c 18 ASIA NEW The determinants of visitor arrivals in ZEALAND the Pacifi c: A gravity model analysis 23 Hosting major Pacifi c events: AMERICAS Boon or bane? 26 OTHERS Tourism facilitation: What can the Pacifi c learn from Southeast Asia? 28 Economic indicators 32 Highlights Larger Pacifi c economies experiencing fi scal crunch. Weak energy export FROM IN 2014 TO BY 2019a revenues in Papua New Guinea (PNG), 1.3 M 1.9 M and delays in Fiji’s public asset sales restrain planned expenditures in the near term. Petroleum revenues are steadily ɆɆ Ɇ declining in Timor-Leste, requiring NEED TO LOOK BEYOND Ɇ Ɇ medium-term adjustment to a sustainable INTERNATIONAL fi scal path. In Fiji, PNG, Solomon Islands, ARRIVAL NUMBERS 6% TUVALU Tonga, and Vanuatu, extreme weather Recommended SOLOMON conditions related to El Niño are exerting alternative measures: ISLANDS 6% TIMOR- LESTE 2% economic and fi scal pressures. RMI 10% Windfall-fi nanced increases in public ƷɆ!!%,0/Ɇ,!.Ɇ2%/%0+.Ɇ COOK60% ISLANDS ɆɆƠ/,!* %*#Ɇ,!.Ɇ 5ơ TONGA 10% spending for smaller economies. VANUATU ƷɆ1.0%+*Ɇ+"Ɇ/05 10% 36% Continued rises in fi shing license fees FSM ƷɆ1)!.Ɇ+"Ɇ have boosted fi scal resources of smaller 54% ɆɆɆɆ.!,!0Ɇ2%/%0+./ PALAU island economies, including Kiribati, SAMOA 18% ƷɆ..%2(/Ɇ+10/% !Ɇ Nauru, Palau, and Tuvalu. El Niño is ɆɆɆ,!'Ɇ,!.%+ / FIJI 20% expected to lead to transitory increases in ƷɆ +/Ɇ(%*'! Ɇ0+ tuna stocks, and any additional revenues tourist sector will need to be managed carefully to safeguard long term fi scal sustainability. TOURISM RECEIPTS (% OF GDP)b Tourism trends and opportunities. Policy briefs in this issue discuss the drivers of strong demand for tourism in the Pacifi c and the challenges to growth (e.g., lack of infrastructure, human resources, destination development, airline links, and visa restrictions). Measures to ensure tourism develops a Pacific Asia Tourism Association. 2015. Asia Pacific Visitor Forecasts 2015–19. in an inclusive and environmentally Bangkok. sustainable manner are also explored. b ADB calculations using data from the World Bank and national sources. 2Highlights Asian Development Bank projections GDP growth Creative Commons Attribution 10.0 3.0 IGO license (CC BY 3.0 IGO) Palau 9.0 9.0 © 2015 ADB. The CC license does not apply to non-ADB Papua New Guinea 3.0 copyright materials in this publication. Nauru 6.8 Some rights reserved. Published in 2015. 5.4 4.1 Printed in the Philippines. Timor-Leste 6.6 Fiji 4.0 ISBN 978-92-9257-240-2 (Print), 978-92-9257-241-9 (e-ISBN) 4.0 3.5 Publication Stock No. RPS157767-2 Marshall Islands 1.5 Solomon Islands 3.0 Cataloging-In-Publication Data 3.5 3.0 Pacific region Kiribati 2.0 15 Pacific islands Asian Development Bank Tonga 2.4 Pacifi c Economic Monitor, December 2015. 2.6 2.0 10 Mandaluyong City, Philippines: Tuvalu 2.0 Asian Development Bank, 2015. 1.7 Samoa 1.9 5 This edition of the Monitor was prepared by Yurendra Basnett, 0.0 FSM 4.0 0 Robert Boumphrey, Prince Cruz, Caroline Currie, Christopher –0.4 2011 12 13 14 15p 16p Edmonds (editor-in-chief), David Freedman, Malie Lototele, Cook Islands –0.2 Rommel Rabanal, Bing Radoc, Roland Rajah, Shiu Raj Singh, Vanuatu –1.0 Cara Tinio, Laisiasa Tora, and Johannes Wolff of the Pacifi c 4.5 Department. Publishing production assistance was provided by –5.0 0.0 5.0 10.0 15.0 Cecil Caparas. Change in real GDP (%) 2015p 2016p The views expressed in this publication are those of the authors Inflation and do not necessarily refl ect the views and policies of the Nauru 11.4 Asian Development Bank (ADB) or its Board of Governors or 10.0 6.0 the governments they represent. Papua New Guinea 6.0 4.0 ADB does not guarantee the accuracy of the data included Vanuatu 2.5 in this publication and accepts no responsibility for any Cook Islands 3.0 consequence of their use. 2.0 Palau 2.2 By making any designation of or reference to a particular 3.0 2.0 territory or geographic area, or by using the term “country” in Fiji 3.0 this document, ADB does not intend to make any judgments Solomon Islands 2.0 as to the legal or other status of any territory or area. 2.8 2.0 Tuvalu 2.0 ADB encourages printing or copying information exclusively for 1.9 Pacific region personal and noncommercial use with proper acknowledgment Samoa 2.0 9 Pacific islands of ADB. Users are restricted from reselling, redistributing, or 1.8 Timor-Leste 3.0 creating derivative works for commercial purposes without the Marshall Islands 1.4 6 express, written consent of ADB. 1.3 Kiribati 1.0 3 Note: ADB recognizes “China” as the People’s Republic of China. 1.5 FSM 1.0 1.0 0 2011 12 13 14 15p 16p Printed on recycled paper Tonga 0.4 1.2 –2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Abbreviations Change in consumer price index (%, annual average) 2015p 2016p $ US dollar, unless otherwise stated A$ Australian dollar e = estimate, FSM = Federated States of Micronesia, GDP = gross domestic product, ADB Asian Development Bank p = projection. F$ Fiji dollar Note: Projections are as of November 2015 and refer to fiscal years. Regional averages of GDP FSM Federated States of Micronesia growth and inflation are computed using weights derived from levels of gross national income in current US dollars following the World Bank Atlas method. Averages for the Pacific islands FY fi scal year exclude Papua New Guinea and Timor-Leste. Timor-Leste’s GDP is exclusive of the offshore GDP gross domestic product petroleum industry and the contribution of the United Nations. JICA Japan International Cooperation Agency Source: ADB estimates. K PNG kina lhs left-hand scale Notes LNG liquefi ed natural gas m.a. moving average This Monitor uses year-on-year (y-o-y) percentage changes to reduce the NZ$ New Zealand dollar impact of seasonality, and 3-month moving averages (m.a.) to reduce the PNG Papua New Guinea impact of volatility in monthly data. PRC People’s Republic of China rhs right-hand scale Fiscal years end on 30 June for the Cook Islands, Nauru, Samoa, and Tonga; US United States 30 September in the Marshall Islands, the Federated States of Micronesia, Vt Vanuatu vatu and Palau; and 31 December elsewhere. y-o-y year-on-year The Economic Setting3 International and regional developments 2015 global economic growth disappoints GDP growth (%, annual) Expectations of faster global growth in 2015 failed to materialize due to lower- 02468 than-projected expansion in the People’s Republic of China (PRC), Japan, and the United States (US). The consensus global growth forecast is now World at 3.1% in 2015—down from 3.7%. This is projected to strengthen to 3.6% in Developing Asia 2016—below the start of year forecast (4.0%). Risks to this outlook include possible oil price shocks from confl icts in Syria and fi nancial disruptions that Pacific DMCs may be triggered by monetary tightening in the US. Australia US growth rebounded in Q2 2015 to a seasonally adjusted annualized rate Japan of 3.9%, after low growth in Q1 (0.6%) due to a severe winter in most of the country. Personal consumption expenditure made the largest contribution to New Zealand Q2 growth. Consumption was boosted by rising employment, which reached Eurozone 2016p its highest rate since Q2 2008. Growth in Q3 was at 2.1%, full-year growth 2015p is projected at 2.6%. The US Federal Reserve has signaled that it will begin United States 2014 raising interest rates in December. DMC = developing member country, GDP = gross domestic product, p = projection. In Japan, the economy entered recession in Q3 as exports and capital Notes: Developing Asia and Pacific DMCs as defined by expenditure contracted. With this recession—the fi fth since 2008—growth ADB. Figures for 2014 are based on ADB estimates for for 2015 is now expected at 0.7%. developing Asia and Pacific DMCs. Sources: ADB. 2015. Asian Development Outlook 2015 Growth in the Eurozone is now projected at 1.5% (from 1.3%) for 2015 due Update. Manila; CEIC; Economist Intelligence Unit; International Monetary Fund; Organisation for to stronger consumer confi dence and sales in Q3. Boosted by the weak euro Economic Co-operation and Development. and low commodity prices, exports strengthened. The European Central Bank is expected to continue its accommodative monetary policy, especially with Unemployment rates the continuing concerns about Greece’s debt and wide variation in economic (% of labor force, quarterly) performance across Eurozone countries. 10 Developing Asia’s growth is projected to slow to 5.8% in 2015 (from an earlier 8 projection of 6.3%) on the back of moderating growth in its biggest economies, 6 as reported in the Asian Development Outlook 2015 Update. In the PRC, growth 4 in Q3 was 6.9%, the lowest since 2008, led by slowdowns in construction and real estate. Weaker growth in the PRC appears to have slowed growth in other 2 Asian economies, Australia, and New Zealand.