ANZ: Economic outlook positive for PNG

By MALUM NALU

THE economic outlook for Papua New Guinea remains positive despite the on-going political impasse, according to the ANZ Bank, The National reports.
 The vote-of-confidence was given by ANZ in its Asia Pacific Economic Pacific Quarterly released yesterday.
“We continue to see a mixed bag of developments in the Pacific,” ANZ’s Asia Pacific chief economist Paul Gruenwald said.
“The ‘harder’ commodity intensive export economies of Papua New Guinea, the Solomon Islands and Timor-Leste continue to outperform.
“Elsewhere, the pace of activity remains lacklustre.
“ However, unfavourable weather and ongoing global weakness may slow economic growth.
“Interest rates remain low on high liquidity while inflation pressures have eased.”
The report highlighted:

• GDP growth is expected to be well above the official target of 7.0% this year, driven by the LNG project and government spending;
• Exports were expected to have declined 5.4% year-on-year during the third quarter of last year from mining disruptions and farmers’ response to high operating costs.
•   Imports were expected to have declined 10.8% year-on-year: general imports will have declined offsetting high mineral imports.ANZ expected a trade balance surplus of K1,584 million over the quarter;
• Employment growth continued upward from its low of -0.1% year-on-year during the third quarter of 2010, rising 7.6% during the third quarter of last year. Transport sector employment during the third quarter jumped 23.9%, while employment in retail and wholesale grew 3.0% and 15.1%, respectively.However, employment in construction declined 9.9%;
• Credit growth remained sluggish with many companies self-funding their activities, while those involved in the LNG project sourced financing offshore as local banks have tightened lending on global economic uncertainties.Lending grew 10.6% year-on-year during the third quarter last year, compared to 12.8% in the second quarter, same period;
• Solid foreign currency inflows together with rising government deposits are keeping bank liquidity levels high and adding pressure to interest rates.The 28-day bill rate was 2.69% at December-end, up slightly from 2.65% at September-end, but below the March-end rate of 3.02%;
• Inflation eased to 8.4% during the third quarter of last y ear on falling import prices.An 18% decline in rice prices and government pressure on businesses to reduce prices on the back of kina appreciation may have resulted in a further reduction in inflation during the fourth quarter last year; and
• Recent unfavourable weather was expected to continue into April-May and global uncertainties may slow growth.Rising government expenditure ahead of the national election might add inflationary pressure.