MANILA, PHILIPPINES – Pacific growth softened in 2012 and is expected to moderate further in 2013, as gains from major investment and public infrastructure projects fade, according to the latest Pacific Economic Monitor, released today by the Asian Development Bank (ADB).

Regional growth eased to 7.3% in 2012?down from a post global financial crisis high of 8.3% in 2011. The report forecasts a further slowdown to 5.2% in 2013, before a mild pick up to 5.5% emerges in 2014.

The 2012 performance was affected by a slightly softer pace of expansion in the larger, resource exporting economies of Papua New Guinea (PNG) and Timor-Leste, although these economies are still expanding at rates that lead the region. The Solomon Islands saw a sharp pullback from double digit growth rates, as log revenues leveled off. Reduced gains from public construction projects weighed down growth in Kiribati, the Federated States of Micronesia, Samoa, and Tonga.

However, growth actually increased in 2012 for some countries in the region. Growing tourist arrivals gave growth a boost in the Cook Islands and Vanuatu, and supported solid growth in Palau. The tourism outlook for the region remains bright, with visitor numbers in 2012 building on historic highs set the previous year. Strong arrivals from the main markets of Australia and New Zealand, as well as a rise in numbers from East Asia, are driving the gains. This uptrend is likely to continue as the economies of the key source markets are expected to remain steady, as long as emerging concerns about the availability of tourism facilities at peak tourism periods are addressed.

"While regional growth is moderating under the weight of slow-downs in some resource-rich countries, it is encouraging to note that the tourism sector is leading the growth in a number of small Pacific countries," said Xianbin Yao, Director General of ADB’s Pacific Department.

Pacific countries that have developed strong tourism sectors can build on their success by strengthening their transport and communication linkages to make it easier for visitors to travel and stay, and for tourism businesses that host them to operate profitably. Maintenance and improved provision of public goods also need to be prioritized since successful tourist sectors are underpinned by host countries’ basic infrastructure and public service delivery.

Inflation eased to 5.3% in 2012 on more stable food and fuel prices, but is set to accelerate to 6.1% in 2013 and 6.3% in 2014 as the muting effect of strong regional currencies on import prices dissipates in some countries, and public spending quickens.

For 2014, the region is likely to benefit from a rebound in the PNG economy, along with the rollout of new public infrastructure projects in smaller islands including post-cyclone reconstruction work. Growth however is expected to remain sluggish in the Solomon Islands due to log production declines, even as agricultural and gold output is projected to rise.

Published three times each year, the Pacific Economic Monitor reviews economic developments and issues in the Pacific Islands, PNG, and Timor-Leste.