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Economy could tank by -6.6 per cent by December, C.B.S. predicts

The Central Bank of Samoa (C.B.S.) predicts the country’s gross domestic product (G.D.P.) will fall by -6.6 per cent by the end of the year in response to international border closures resulting from the global pandemic COVID-19.

This week, the International Monetary Fund (IMF) revealed its own prediction: that global G.D.P. will fall by 3 per cent, the lowest drop in nearly a century marking a worse economic downturn than the Global Financial Crisis of 2008.

C.B.S. Governor Maiava Atalina Ainuu-Enari said the bank is predicting some economic bounce back in 2021, forecasting GDP to fall around -1.7 per cent, and ending the year on 1.1 per cent in December.

But with the global and regional situation changing daily, Maiava cautioned that the Bank’s prediction can only be as meaningful as the data currently available.

“Given the ever-changing global developments as a result of Covid-19 measures by various countries as well as our Government’s anticipated policy responses in the next few months, these forecasts will also highly likely change as new information becomes available,” she said in an email to the Samoa Observer.

The global community is headed towards an unprecedented recession for this century, the I.M.F. warns, calling it a crisis like no other.

In its World Economic Outlook report, it too reflected on the uncertainty of the data from which its prediction is based.

The length of the pandemic, treatment or vaccine production and distribution, ability and progress in reopening economies around the world and the state of businesses and markets globally are all too unclear.

Spending, and spending large, may be the best way forward for many Governments, the organisation suggests. 

“Broad-based fiscal stimulus where financing constraints permit (such as public infrastructure investment or across-the-board tax cuts) can pre-empt a steeper decline in confidence, help lift aggregate demand, limit the propagation of the shock by reducing bankruptcies, and avert an even deeper downturn.

"But it would most likely be more effective in stimulating spending after the outbreak recedes, containment efforts are scaled back, and people can move about freely.”

Maiava referred questions about whether Samoa can afford to escalate fiscal spending to the Ministry of Finance. 

But she said Samoa’s G.D.P. will certainly be damaged by the domestic tourism industry’s crash, the potential for private remittances to slow, and the state of the regional trade marketplace.

“Externally, our main trading partners (i.e. New Zealand, Australia and USA) are all at various stages with their confirmed Covid-19 cases and, as a result, their policy responses also differ.

“Domestically, given the Government of Samoa’s precautionary measures to contain this pandemic beyond our borders, the global restrictions on international travel will have significant impact on the local tourism industry as lower domestic demand will likely be felt through reduced consumption spending and other related business activities. 

“A notable drop is also anticipated in our export levels in the June quarter, as the restrictions on fishing vessels in late March will impact on fish exports, which is the major export commodity.

The Bank forecasts made at the beginning of the state of emergency on March 21 suggest Samoa’s economy will track from -2.2 per cent to -5.0 per cent in real G.D.P. by June this year. 

Maiava said this estimate will change dramatically depending on how effective the relief and stimulus packages are, how restricted domestic and international activities are and how New Zealand, Australia and the United States markets fare as they deal with their own issues.

The extent of the world’s COVID-19 containment and elimination measures will start to be realised over the next six to nine months. 

“Again, we strongly caution and emphasize that this growth projection path was based only on the information available up to 23 March 2020.

“In these very unprecedented times, there is a high degree of uncertainty in the extent to which any economy will fare as the economic consequences of the Covid-19 pandemic are yet to be fully realized or how successful the various containment measures by different countries will be over the coming months.”

Maiava’s full response to the Samoa Observer is reprinted below:

As a small developing economy that is open to international trade with the rest of the world, any major developments in the global economy and markets will have an impact on Samoa’s domestic activities. That said, the current global Covid-19 pandemic health crisis will most certainly have adverse effects on  Samoa’s GDP due to several factors but mainly as the closure of international borders and estimated economic contractions of our main trading partners (namely New Zealand and Australia) is expected to pass through to affect the domestic tourism industry, flows of private remittances, and external trade of merchandise goods. As a result and similar to the rest of the world, Samoa’s GDP is also expected to contract in the next twelve months.

Forecasting is only as good as the information available at a certain point in time. In these very unprecedented times, there is a high degree of uncertainty in the extent to which any economy will fare as the economic consequences of the Covid-19 pandemic is yet to be fully realized or how successful the various containment measures by different countries will be over the coming months. What is certain is that disruptions to economic growth is likely over the next twelve months, with the Covid-19 pandemic likely to have a sharper downturn on the global economy compared to the Global Financial Crisis.

In view of this, kindly note there is also a significant uncertainty in CBS forecasts on the effects of Covid-19 on the Samoan economy so far, given known downside risks (domestically and internationally) and available information to date. Externally, our main trading partners (i.e. New Zealand, Australia and USA) are all at various stages with their confirmed Covid-19 cases and, as a result, their policy responses also differ. The global containment measures undertaken have led to disruptions in world trade but notably to international travel. Domestically, given the Government of Samoa’s precautionary measures to contain this pandemic beyond our borders, the global restrictions on international travel will have significant impact on the local tourism industry as lower domestic demand will likely be felt through reduced consumption spending and other related business activities. A notable drop is also anticipated in our export levels in the June quarter, as the restrictions on fishing vessels in late March will impact on fish exports, which is the major export commodity.

As a result, preliminary CBS forecasts undertaken on 23 March 2020 (at the outset of the State of Emergency period) on the effects of Covid-19 is for the Samoan economy to track from -2.2 percent to a -5.0 percent (mainly on the downside) in real GDP[1] in the year ending June 2020, however, these estimate  are highly susceptible to the following:

  1. the effectiveness of the implementation of any relief and/or stimulus policy package,
  2. the tightened or restrictive measures on domestic and international activities,
  3. the adverse implications on our main source markets (New Zealand, Australia and the United States of America);

Going forward, as the extent of current containment measures and global developments will start to be fully realized over the next six to nine months, we forecast real GDP to further contract by -6.6 percent in the year ending December 2020. This is reflecting the prolonged closure of international borders which will result in no tourism arrivals in the next six or so months and the recessionary effects in our main trading partners that would limit any external demand or flows into Samoa. We project some economic recovery to take place in 2021, with the real GDP forecast to contract to around -1.7 percent in the financial year to June 2021, and positive real growth of around 1.1 percent in the year ending December 2021.

Again, we strongly caution and emphasize that this growth projection path was based only on the information available up to 23 March 2020. Given the ever-changing global developments as a result of Covid-19 measures by various countries as well as our Government’s anticipated policy responses in the next few months, these forecasts will also highly likely change as new information becomes available.

The Central Bank will continue to closely monitor these developments and inform the Government and the general public accordingly on the Covid-19 effects on Samoa’s economy in the months ahead.

[1] This downward trend in real GDP growth is consistent with the growth forecasts published by the International Monetary Fund.

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