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Report: increased economic activity in Vanuatu to cause higher inflation

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The latest Asian Development Outlook 2017 report says growth forecasts for the Pacific are retained for 2017 but slightly downgraded for 2018 with unchanged outlooks for the largest Pacific economies, Papua New Guinea and Timor-Leste.

It is mentioned in the report that Vanuatu (as well as Tuvalu) is experiencing increased economic activity, which, among other things, will affect the slight acceleration of the average inflation in the Pacific. Inflation in this region to reach 5.3% in 2017, or 0.1 percentage points higher than projected in April, and to also affect Fiji and Nauru, reports PACNews.

Soft international food and fuel prices brought lower-than-expected inflation in the Marshall Islands and Solomon Islands, and even deflation in the Cook Islands and Samoa, but failed to lower aggregated inflation in the sub-region.

Papua New Guinea can expect to see mining and agriculture recover from disruption caused by weather and operational issues in recent years. However, as large investments in mining will likely be delayed until the third or fourth quarter of 2018, growth forecasts are retained.

The growth projection for Timor-Leste is also unchanged as higher government spending on wages and purchases of goods and services will be offset by a planned slowdown in capital expenditure.

Updates to prospects for some of the smaller economies are mixed.

The growth forecast is down for the Federated States of Micronesia and more so for Palau on account of investment bottlenecks and lower tourist arrivals, as well as in Nauru as prices for phosphate exports drop. Projections for Fiji and Samoa are raised on strong agriculture output, and an improved outlook for Tonga reflects higher remittances and earnings from tourism and exports.

Some domestic drags on Pacific economies are expected to persist into 2018, pulling down the sub-regional growth forecast slightly to 3.2%.