Economic growth in the Pacific will slow to 3%, down from a record 5.1% in 2008, as the impact of the global economic crisis and falling commodity prices takes it's toll on the region, says the ADB in a major new report.

ADB's flagship annual economic publication, Asian Development Outlook 2009 (ADO 2009), released today, says the region will continue to grow overall in 2009 because of expansion in the large, resource rich nations. Papua New Guinea and Timor-Leste are drawing on savings made from boom commodity prices to help support their economies during the global economic crisis. But most other Pacific nations will either contract or experience minimal expansion in 2009.

"There is no doubt the global economic crisis is impacting adversely on the Pacific economies, and the region has not yet felt the full force of these impacts," says S.Hafeez Rahman, ADB's Director General of Pacific Department.

Growth is expected to slow in Vanuatu in 2009 as the tourism sector softens, but to remain at a moderate level of 3.5%. A contraction is expected in Fiji Islands, Palau, Samoa and Tonga as tourism and remittances weaken. Special sporting events and large public projects are projected to see the tourism dependent Cook Islands avoid a contraction.

A reliance on stable external grants and draw-downs from public savings, which have reached unsustainable levels in some cases, is expected to support the economies of FSM, Kiribati, Marshall Islands and Tuvalu. Growth will however remain low. Phosphate mining is projected to see Nauru achieve low economic growth in 2009.

"The Pacific can take action towards recovery from the crisis," says Mr. Hafeez Rahman. "The best option is to adopt a short-term fiscal stimulus, where affordable and offering good value for money, by increasing government expenditure or possibly by reducing taxes. Care is nonetheless needed to avoid budget blow-outs."

High international commodity prices caused very high inflation for many of ADB's 14 Pacific Developing Member Countries. In 2008 inflation averaged 9.6% across the region and peaked at 17.5% in the Republic of the Marshall Islands. The ADB Report says inflation will ease somewhat across the Pacific in 2009.

In Fiji Islands, the economy recovered in 2008 to grow at 1.2%, helped by an increase in visitor arrivals.

Solomon Islands economic growth of 6.4% in 2008 was largely due to the continuation of an unsustainably high rate of logging of native forests.

In 2008, tourism related activities helped support a relatively high growth rate of 6.3% in Vanuatu.

ADB, based in Manila, is dedicated to reducing poverty in the Asia and Pacific region through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members - 48 from the region. In 2008, it approved $10.5 billion of loans, $811.4 million of grant projects, and technical assistance amounting to $274.5 million.