RESERVE BANK OF FIJI QUARTERLY REVIEW December 2019 Private Mail Bag, Suva, Republic of Fiji Telephone: (679) 331 3611, Email: [email protected] Website: http://www.rbf.gov.fj RBF Quarterly Review December 2019 QUARTERLY REVIEW OF THE ECONOMY & FINANCIAL CONDITIONS Overview 1 The International Economy 2 International Economic Conditions 2 The Domestic Economy 6 Domestic Economic Conditions 6 Production 6 Consumer Spending 7 Investment 7 Public Finance 8 Labour Market 8 Inflation 9 External Sector 9 Domestic Financial Conditions 10 Money Markets 11 Bond Market 11 Foreign Exchange Markets 11 Financial Intermediaries 12 Banking Industry Quarterly Condition Report - September 2019 13 Insurance Industry Quarterly Condition Report - September 2019 24 Capital Markets Quarterly Performance Report - September 2019 29 For the Record Reserve Bank of Fiji Presents its Audited Financial Statements for 2018-2019 33 Revised Growth Projections for the Fijian Economy for 2019-2022 34 Overnight Policy Rate Remains Unchanged 36 Conclusion of Transition Period for Personal Property Securities Act 2017 37 Reserve Bank of Fiji Releases Financial Stability Review 2019 39 Reserve Bank of Fiji Announces Changes in Executive Roles 40 Reserve Bank Launches Regulatory Sandbox, Invites Innovative Solutions for Fiji’s Financial Sector 42 Statistical Annex 43 Reserve Bank of Fiji Publications 45 RBF Quarterly Review December 2019 OVERVIEW According to the International Monetary foreign assets. Likewise, private sector Fund (IMF)1, global growth is projected to credit (PSC) expanded on a quarterly rise from an estimated 2.9 percent in 2019 basis by 0.9 percent owing to an to 3.3 percent in 2020 and 3.4 percent in increase in commercial banks’ lending to 2021. The revised growth rates are lower private sector business entities (PSBEs), by 0.1 percentage points (pp) for 2019 and while net credit to the central government 2020 and 0.2pp for 2021 when compared to fell. the October 2018 forecast. The slight downward revision in 2020 mainly reflects The overall performance of commercial weaker-than-expected performances in banks, credit institutions, insurance emerging market and developing industry and other financial corporations economies (EMDEs) particularly India. remained satisfactory during the third quarter of 2019, supporting financial Looking ahead, rising geopolitical tensions stability. between the United States (US) and Iran and intensifying social unrest in several The merchandise trade deficit (excluding other countries coupled with weak global aircraft) widened marginally by 0.6 percent demand pose further downside risks to to total $782.8 million over the September global growth this year. However, the quarter, compared to the 7.4 percent signing of the ‘phase one’ trade deal expansion in the June quarter. between the US and China in January 2020 should ease tensions and enhance trade Annual inflation rate in December 2019 fell flows in the near future. to -0.9 percent (deflation), lower than the 0.4 percent in September mainly led by Domestically, the Fijian economy is lower prices noted for communication; expected to expand by 1.7 percent in 2020, alcoholic beverages, tobacco & narcotics; from an estimated 1.0 percent growth in housing, water, electricity, gas & other 2019. The pick-up anticipated for 2020 is fuels and transport categories. owing to a gradual recovery in aggregate demand, sectoral performances and The Reserve Bank of Fiji’s (RBF) holdings business confidence. of foreign reserves were $2,219.8 million at the end of December, sufficient to cover 5.2 Monetary conditions in the December months of retained imports (MORI) of quarter remained supportive of domestic goods and non-factor services, up from economic growth with sufficient liquidity $2,161.1 million (5.0 MORI) at the end of in the banking system. At the end of the September. quarter, excess liquidity was $603.7 million, slightly lower than the $612.6 The RBF kept its Overnight Policy Rate million at the end of September. Broad (OPR) at 0.5 percent in the December money rose on a quarterly basis by 1.3 quarter, in line with the favourable outlook percent, underpinned by increased net for inflation and foreign reserves. 1 January 2020 World Economic Outlook (WEO). 1 RBF Quarterly Review December 2019 THE INTERNATIONAL ECONOMY International Economic Conditions The US economy grew by an annualised 2.1 percent in the September quarter According to the IMF, global growth is following a 2.0 percent expansion in the anticipated to pick up in 2020 to 3.3 percent June quarter. The slight uptick was mainly from 2.9 percent estimated in 2019 (Graph due to increases in personal consumption 1). The revised growth rates for both years expenditures, federal government are lower by 0.1pp than the October spending, residential investment, exports forecast. The downward revision in 2020 and both state and local government is mainly on account of the slowdown in a spending. few EMDEs, the impact of increasing civil unrest across the world and lower Both manufacturing and services activities anticipated growth for some advanced rose in the December quarter when economies such as in the US, Euro zone compared to September. Labour market and the United Kingdom (UK). sentiments were firm as the unemployment rate held steady at 3.5 percent in December Graph 1 similar to September end. Annual inflation World GDP Growth Rates rate in December was 2.3 percent higher Percent 4 than the 1.7 percent rate in September. Given this backdrop, the Federal Open 3 Market Committee decided to maintain the target range for its federal funds rate at 2 1.50-1.75 percent in its December meeting, following a 25 basis points fed rate cut in 1 its October meeting. 0 2013 2014 2015 2016 2017 2018 2019e 2020f 2021f In addition, the official signing of the first Source: IMF WEO, January 2020 stage of the trade deal between the US and China in January 2020 is expected to The accommodative monetary policies provide impetus for economic activity in adopted by key central banks in the final the US. Following an estimated 2.3 percent quarter of 2019 is likely to support expansion in 2019, the US economy is economic activity going forward. In expected to grow by 2.0 percent in 2020. addition, the signing of the phase one trade Annual inflation is forecast at 2.3 percent deal in January 2020 between the US and in 2020. China should ease tensions and enhance trade flows in the short to medium term. The Euro zone expanded by 0.2 percent However, downside risks to the global in the third quarter of 2019, the same outlook remain elevated. These include the pace as the preceding quarter. Increases in on-going conflict between the US and Iran, household consumption, fixed investment financial vulnerabilities, weather-related and government spending underpinned this shocks and the recent Coronavirus outcome. outbreak that may threaten prospects for global economic growth. 2 RBF Quarterly Review December 2019 Manufacturing activity rose in December Following an estimated 1.0 percent growth compared to September due to stronger in 2019, the Japanese economy is forecast increases in export orders. Inflation rate to expand by 0.7 percent in 2020. Annual stood at 1.3 percent in December from 0.8 inflation is expected to be around 1.3 percent in September 2019, much closer to percent in 2020. the European Central Bank’s (ECB) target rate of 2.0 percent. On account of some The Australian economy grew by 0.4 rigid progress on Euro area reforms and the percent in the September quarter pending outcome of Brexit negotiations, compared to 0.6 percent in the June quarter. the ECB maintained its refinancing rate at The slower growth momentum was 0.0 percent, deposit rate at -0.50 percent attributed to lower government and and marginal lending rate at 0.25 percent in household spending. its December meeting. A slowdown in consumer confidence was In the Euro zone, growth is expected to pick noted in the December quarter compared to up to 1.3 percent following an estimated 1.2 the previous quarter. Additionally, percent expansion in 2019. Annual services activity dropped and inflation is expected to be around 1.4 manufacturing activity also registered percent in 2020. sharp falls particularly in the last two months in the December quarter. The Japanese economy expanded by 0.4 percent in the third quarter from the 0.5 In order to support employment, income percent in the previous quarter. Growth growth and a bid to return inflation to the was supported by the increases in private medium-term target range, the Reserve and capital expenditure which more-than- Bank of Australia maintained its cash rate offset the negative contributions from at the historic low level of 0.75 percent in external demand. December. The impact of typhoon Hagibis coupled Additionally, the recent bushfires which with the increase in sales tax from 8.0 intensified in December may weigh on first percent to 10.0 percent in October and on- quarter growth of 2020. going trade tensions have lowered the pace of manufacturing and services activities in The Australian economy is anticipated to December relative to September. have grown by 1.7 percent in 2019. Nonetheless, the Japanese Government has Growth is forecast to pick up to 2.3 percent announced a US$120.0 billion spending in 2020, while inflation is expected to be package, of which 20.0 percent will be around 1.8 percent in 2020. spent by March 2020 to support stalling growth and sustain activity post Olympics. The New Zealand (NZ) economy Inflation rose to 0.9 percent in December expanded by 0.7 percent in the third compared to 0.4 percent in September quarter, from the 0.1 percent expansion in 2019, however remained below the Bank of the June quarter.