Update on the World and Samoan Economy in the Ten Months to April 2019

17 June 2019, Government Press Secretariat. The following report was presented at the CDC by the Central Bank of Samoa

A. WORLD ECONOMY

The world economy remains on track to lose its growth momentum in 2019 following recent developments since the release of the International Monetary Fund (IMF)’s April World Economic Outlook. While the March quarter economic indicators for some countries pointed to better than expected outturns, softer economic dynamics in the advanced economies and mounting downside risks are expected to weigh heavily on the global economy. An all-out escalation of the US and China trade dispute, which shows no signs of diminishing, are increasing concerns that another global economic crisis could be eminent amidst subdued growth across the globe.

The inflation rate dropped further to 1.5 percent in the first quarter (from 1.9 percent in December 2018 and well below its 2 percent inflation target), while the unemployment rate dropped to 4.2 percent in March from 4.3 percent in the previous quarter.

Given the weak economic outlook, subdued inflationary pressures and expected rising unemployment rates in some countries, central banks worldwide (particularly the US Federal Reserve Bank and RBA) are generally expected to ease their monetary policies in the short term.

B.THE SAMOAN ECONOMY

Gross Domestic Product (GDP)
Nominal GDP
Quarter (Dec 2018 quarter)
$569.74 million, 7.9 percent higher than $528.20 million in December 2017 quarter.Annual (12 months to end Dec 2018)
$2,156.41 million or 2.4 percent higher than $2,106.17 million for the same period up to December 2017.GDP per capita (12 months to Dec 2018)
$11,007 per capita, 1.5 percent higher than $10,848 for the same period up to December 2017.
Real GDP
Quarter (Dec 2018 quarter)
$518.17 million, 6.0 percent higher than $488.81 million in December 2017 quarter.

Annual (12 months to end Dec 2018)
$2,005.43 million or 0.7 percent higher than $1,992.34 million for the same period up to December 2017.
Inflation
The annual average headline Consumer Price Index inflation rate fell for the sixth consecutive month, down to 3.1 percent at end April 2019, from 3.3 percent in the previous month, but was still higher than 2.9 percent in April 2018. This monthly decline was underpinned by reductions in both its local and imported components, down to 3.9 percent (from 4.1 percent) and 2.3 percent (from 2.5 percent) respectively. Similarly, the underlying inflation rate also continued to decelerate, falling to 1.2 percent from 1.4 percent in March 2019 and 3.4 percent in April last year.
Agricultural produce sold at Market outlets around Apia
According to surveys conducted by Samoa Bureau of Statistics (SBS), the average volume of agricultural produce supplied to the local Produce Market outlets around Apia dropped by 7.7 percent in the first ten months of 2018/19 over the same period last year. The overall reduction in overall quantity was due to decreases in supplies of staple crops such as taro, banana, ta’amū and yams as well as vegetable items such as head cabbage, tomatoes, cucumber and Chinese cabbage. As a result, the average price index of agricultural produce sold at the local markets rose by 11.6 percent in the reviewed period.

Balance of Payment
External Trade:I. Total Exports of Goods
$99.34 million; 45.4 percent higher than $70.19 million in the first nine months of 2017/18.

Export Composition
The shares of the main exports were as follow:

Re-exports – 35.4 percent ($34.78 million)
Domestically produced exports – 64.6 percent ($64.55 million)
Of which;
Fresh Fish – 32.4 percent                                        ($31.49 million)
Nonu Juice – 11.4 percent                                       ($12.35 million)
Taro – 5.6 percent                                                    ($5.41 million)
Beer – 4.8 percent                                                    ($4.77 million)
Crude coconut oil – 2.0 percent ($2.15 million)
Coconuts – 1.2 percent ($1.23 million)
Scrap Metal – 0.8 percent ($0.69 million)
Others – 6.4 percent ($6.46 million)

II. Total Imports of Goods
$680.18 million, 9.7 percent higher than $620.01 million in the first nine months to March 2018.

Petroleum increased by 39.2 percent to $131.92 million
Non-petroleum private sector imports went up 5.9 percent to $496.72 million
Government imports dropped by 8.3 percent to $51.54 million

III. Net Trade of Goods Deficit
$580.84 million, 5.3 percent higher than $551.71 million in the first nine months of 2017/18.

IV. Visitor Arrivals and Receipts
Total Arrivals
148,807 visitors, 11.2 percent higher than 133,852 visitors in the ten months to April 2018.

Total Receipts
$423.99 million, 15.8 percent higher than $366.00 million in the first ten months of 2017/18.

V. Private Remittances
$452.06 million, 13.4 percent higher than $398.74 million in the first ten months of 2017/18.

VI. Gross Official Foreign Reserves
$465.43 million at end April 2019, 23.1 percent higher than $378.16 million in the same month last year. Sufficient to cover 6.4 months of imports, compared to 5.5 months in April 2018.

External Debt Outstanding (at end Dec 2018)
Debt Stock
$1,063.9 million (49.3 percent of nominal GDP), 0.1 percent higher than $1,062.84 million at end December 2017 (50.5 percent of nominal GDP).Annual Debt Servicing (at end Dec 2018)
$71.70 million, which was 19.1 percent higher than $60.20 million in the year up to December 2017. This was equivalent to

5 percent of recurrent revenue,
1 percent of foreign reserves or
9 percent of total exports of goods and services

C. ATTACHMENT:

DETAILED REPORT ON THE MACRO-ECONOMY FOR TEN MONTHS TO APRIL 2019

A. WORLD ECONOMY UPDATE

Of Samoa’s trading partners, the US economy recorded an annual growth rate of 3.2 percent at end March 2019, from a 3.0 percent annual expansion in 2018. According to the IMF’s latest estimate of the US economy during their June Article IV Assessment, the US economy is expected to dip to 2.6 percent in 2019, with a further slowdown to 2.0 percent in 2020 as the impact of the US fiscal stimulus fades while risks from its trade disputes with China comes into the fold. In Australia, economic growth in the March quarter slowed down to 1.8 percent from 2.3 percent in the previous quarter, reflecting a decline in household consumption and fixed investments. With a continued drop in its inflation rate (to 1.3 percent in the first quarter) further away from the Reserve Bank of Australia (RBA)’s medium term target, and unemployment rate rising to 5.2 percent in April, the RBA subsequently reduced its policy interest rate to a historical low of 1.25 percent on 4^th June. In New Zealand, while GDP figures in the first quarter are not yet available, economic data point to an estimated 2.6 percent real GDP growth compared to a 2.8 percent in the year of December quarter, as weak domestic demand, restrained investments, ongoing low business sentiments and lower consumption took its toll. The inflation rate dropped further to 1.5 percent in the first quarter (from 1.9 percent in December 2018 and well below its 2 percent inflation target), while the unemployment rate dropped to 4.2 percent in March from 4.3 percent in the previous quarter.

B. DOMESTIC ECONOMIC DEVELOPMENTS

I. POLICY INSTRUMENTS AND DEVELOPMENTS

The Government’s net financial position in the first ten months to April 2019 recorded a deficit of $14.81 million over the same month last year.
On exchange rates, the average nominal value of the Tala in the first ten months to April 2019, weakened by 0.15 percent when compared to the same period last year. This decline was highlighted by the depreciation of US dollar (down 3.8 percent), which outweighed the appreciation of the Australian dollar (up by 4.3 percent), the New Zealand dollar (up by 2.6 percent) and the Euro (up 0.6 percent) against the Tala.
The banking system’s average liquidity in the first ten months to April 2019 expanded by 31.4 percent (or $60.17 million) to $251.88 million compared to the same period last year. The bulk of this expansion was due mainly to increases in commercial banks’ average exchange settlement accounts (up $46.07 million), their holdings of CBS securities (up $12.50 million) and vault cash (up $1.61 million).
On interest rates, the overall weighted average yield on CBS securities (or official interest rate) rose to 0.19 percent in April 2019 from 0.15 percent in April last year. On the other hand, commercial banks’ weighted average deposit rate fell to 2.75 percent from 2.84 percent last year while the weighted average lending rate expanded to 9.02 percent from 8.85 percent in April 2019. As a result, the weighted average interest rate margin widened to 6.27 percent from 6.02 percent in the same month last year.
The commercial banks’ total lending to the private sector and public institutions combined increased by 6.3 percent to $1,135.51 million over April 2018. However, the annual average credit growth rate remained at 4.53 percent as in the same month last year.
Overall, total money supply (M2) expanded by $185.57 million (or 18.1 percent) to $1,244.40 million from April last year. This reflected the strong growth in foreign assets of the Central Bank over the year. As a result, the annual average growth rate of M2 rose to 13.6 percent at end April 2019, from 11.8 percent in April 2018.

II. MACRO-ECONOMIC OUTCOMES AND RESULTS

7. Visitor arrivals in the first ten months to April 2019 rose by 2 percent to 148,807 visitors over the same time last year. As a result, total visitor earnings also grew by 15.8 percent to $424.0 million in the corresponding period. Similarly, private remittance increased by 13.4 percent to $452.06 million in the first ten months to April 2019 over the same period last year.

Total export earnings[4] jumped by 4 percent to $99.34 million in the first nine months to end March 2019 over the same period last year. The current overall expansion highlighted increases in both domestically produced exports (up 60.3 percent), of which were fresh fish, nonu juice, crude coconut oil, beer and coconuts amongst others, as well as a 24.0 percent hike in re-exports over the first nine months last year.
On imports, total import payments increased by 9.7 percent (or $60.17 million) to $680.18 million in the nine months to March 2019. This was mainly due to increases in petroleum imports (up 39.2 percent) and private sector non-petroleum imports (up 5.9 percent). As a result, the merchandise trade deficit widened by 5.3 percent to $580.84 million in the first nine months of 2018/19 compared to the same period last year.
The balance of payments posted a surplus of $47.50 million in the ten months to April 2019 compared to a higher surplus of $69.55 million in same period last year. This surplus reflected increased government foreign inflows for budget support as well as a strong CBS net buyer’s position with the commercial banks in light of increased foreign receipts from remittances, visitor receipts and exports in the first ten months of 2018/19. As a result, gross official reserves rose to $465.43 million at end April 2019, sufficient to cover 6.4 months of imports; higher than its 5.5 months cover in the same month of 2018.
The average volume of agricultural produce supplied to local produce markets around the Apia area recorded a drop of 7 percent in the first ten months to April 2019. This reduction in supplies was mainly due to decreases in staple crops such as taro, banana, ta’amū and yams as well as vegetable items such as head cabbage, tomatoes, cucumber and Chinese cabbage. As a result of lower supplies, the overall price level increased by 11.6 percent in the reviewed period.
The annual average headline inflation rate declined further to 3.1 percent at end April 2019 from 3.3 percent in the preceding month but was higher than 2.9 percent in the same month last year. Underpinning this decrease was a reduction in its imported component to 2.3 percent from 2.5 percent in the preceding month and 4.6 percent in April 2018. In addition, its local component also decreased to 3.9 percent from 4.1 percent in the previous month but higher than 1.3 percent in April 2018.
Similarly, the underlying inflation rate, (excluding the adjusted and cyclic price movements from the headline CPI) dropped further to 1.2 percent at end April 2019 from 1.4 percent in March 2019 and 2.9 percent in April 2018.
Real GDP in the December 2018 quarter increased by 2.3 percent to $518.17 million from the previous quarter and was 6.0 percent higher compared to the same quarter last year.
For the whole year up to December 2018, real GDP grew by 0.7 percent, compared to -0.6 percent at end December 2017.
The annual nominal GDP per capita up to December 2018 stood at $11,007; which was 1.5 percent higher than $10,848 for the twelve months up to December 2017.
Total outstanding external debt at end December 2018 stood at $1,063.88 million, or roughly 49.3 percent of nominal GDP. This was 0.1 percent higher than its level ($1,062.84 million) at end December 2017.
Total debt servicing in the twelve months to December 2018 amounted to $71.70 million, which was 19.1 percent higher than its level in the same period last year. The current level was equivalent to 11.51 percent of recurrent government revenue, 16.09 percent of gross foreign reserves or 8.91 percent of total exports of goods and services.