The Fiji Economy and Business - Justin Smirk Director - Senior Economist Westpac Institutional Bank - Fiji Australia ...

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The Fiji Economy and Business - Justin Smirk Director - Senior Economist Westpac Institutional Bank - Fiji Australia ...
The Fiji Economy and Business
                     Justin Smirk
             Director – Senior Economist
             Westpac Institutional Bank

 #2018FABF      www.fabc.com.fj            www.afbc.org.au
The Fiji Economy and Business - Justin Smirk Director - Senior Economist Westpac Institutional Bank - Fiji Australia ...
Justin Smirk
Senior Economist, Westpac

▪   Over 20 years experience in financial markets.

▪   Started out as a farm consultant in the 1980s.

▪   Before working the RBA in the 1990s.

▪ Westpac’s Fiji economic commentator since 2012.

▪ Focus is on people rather than just numbers.

                   #2018FABF               www.fabc.com.fj   www.afbc.org.au
The Fiji Economy and Business - Justin Smirk Director - Senior Economist Westpac Institutional Bank - Fiji Australia ...
Fiji outlook with Trump,
China, & Global Trade Wars.

Westpac Banking Group
Prepared for: FABC / AFBC Joint Forum
By: Justin Smirk, Director & Senior Economist
October 2018

                                                Westpac
                                                  Fiji
The Fiji Economy and Business - Justin Smirk Director - Senior Economist Westpac Institutional Bank - Fiji Australia ...
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                                                                                                                                     Information in this presentation correct as at May 2018
The Fiji Economy and Business - Justin Smirk Director - Senior Economist Westpac Institutional Bank - Fiji Australia ...
Global Economy & Trade

    China, USA, NZ & Australia

    Outlook/risk for crude oil

          Fiji economy

                                 Westpac
5
                                   Fiji
US tariffs primarily target China
          $USbn           value of trade tariffs imposed on                             $USbn
    260                                                                                             260
    240               Announced       Implemented              Retaliation                          240
    220                                              Source: Westpac Economics                      220
    200                                  *Steel & aluminium affect all; other measures are          200
                                         bilateral against China. Announced tariffs have no
    180                                        official start date. Retaliatory measures            180
                                                implemented unless otherwise noted.
    160                                                                                             160
    140                                                                                             140
                           Tariffs on an additional $60bn of trade
    120                    Threatened if US goes ahead with $200bn                                  120
    100                    .                                                                        100
     80                                                                                             80
     60                                                                                             60
     40                                                                                             40
     20                                                                                             20
      0                                                                                             0
              China          Canada                   Europe                    Mexico
                                                                                          Westpac
6
                                                                                            Fiji
          6
‘Trade shock’ risk in play
         %                                                                                 %
    30                           WW1                         EEC/EU
                                                                                                 30
                                                  WW2
                                                             formed
                                                                              China
    25                                                                     joins WTO             25

    20                                                                                           20

    15                                                                                           15
                                                      GATT
    10                                                                                           10
                                     US ‘Smoot
                                    Hawley’ tariffs                      NAFTA
    5                                                                                            5
         *average tariff rate globally
         Sources: World Bank, Westpac Economics
    0                                                                                            0
     1870        1890        1910       1930            1950     1970   1990     2010
                                                                                       Westpac
7
                                                                                         Fiji
The global economy
performed better than
expected in 2018

                        Westpac
                          Fiji
Global growth strong but peaking
         index                                                        index
    65                                                    record
                                                                                65
                                                          high on a
                                                          combined
    60                                                    basis                 60

    55                                                                          55

    50                                                                          50

    45                                                                          45

    40                                                                          40
           JPMorgan global PMI
    35                                           Sources: Macrobond, CEIC,      35
                                                 OECD, Westpac Economics
           Westpac global consumer sentiment
    30                                                                          30
     May-98      May-02     May-06      May-10   May-14               May-18
                                                                      Westpac
9
                                                                        Fiji
US growth to fall back to trend in 2019
            ppts cont'             annualised contribution to GDP              ppts cont'
     3.0                                                                                     3.0
                                    2019H1                   2019H2
     2.5                                                                                     2.5

     2.0                                                                                     2.0

     1.5                                                                                     1.5

     1.0                                                                                     1.0

     0.5                                                                                     0.5

     0.0                                                                                     0.0
            * includes housing
                                     Sources: BEA, Westpac Economics
     -0.5                                                                                    -0.5
            Consumer*            Business Government                   Net X    GDP
                                   Inv.                                            Westpac
10
                                                                                     Fiji
US inflation lifts
         %                                                                  %
     5                                                                            5
                                   wages (qtly)    consumer prices

     4                                                                            4

     3                                                                            3

     2                                                                            2

     1                                                                            1
         *6mth annualised
         Sources: BLS, BEA, Macrobond,
         Westpac Economics
     0                                                                            0
      2002     2004       2006       2008   2010   2012   2014   2016   2018
                                                                        Westpac
11
                                                                          Fiji
US tax & spending, stimulates & hits deficit
      %                       % of nominal annualised GDP       %
12                                                                    12
           CBO alternative forecast (April 2018)*

10         CBO baseline forecast (July 2017)                          10
           Source: CBO, Westpac Economics
            *assumes tax and spending policies extended
8            to end of forecast horizon.                              8

6           Reagan’s                                                  6
          starting point
4                                                                     4

2                                                                     2

0                                                            0
 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
                                                            Westpac
                                                              Fiji
     12
US interest rates & the Fed chair.

                                          Westpac
13
                                            Fiji
China credit in 2018: a wholesale change
            RMB trn            year-to-date lending            RMB trn
     14.0                                                                  14.0
                               Source: CEIC

     12.0                                             Jul-17   Jul-18      12.0

     10.0                                                                  10.0

      8.0                                                                  8.0

      6.0                                                                  6.0

      4.0                                                                  4.0

      2.0                                                                  2.0

      0.0                                                                  0.0
               Total finance            Bank           Non-bank
                                                                 Westpac
14
                                                                   Fiji
China’s Shadow Banking System

      Funded by wealth products; banks; insurance

      Supports              • Offshore investments
                            • Property investors
                            • Property developers
                            • Commodity investors
                            • Local Government (80% of
                              Infrastructure)
                            • Corporates, outside banking system
     Source: Westpac Economics

                                                           Westpac
15
                                                             Fiji
Chinese trade balance in goods & services
     % GDP                              net balance                % GDP
10                                                                                10
         goods balance
8        services balance                                                         8

6                                                                                 6

4                                                                                 4

2                                                                                 2

0                                                                                 0

-2                                                                                -2
     Sources: CEIC, Westpac Economics
-4                                                                                -4
 Mar-00       Mar-03         Mar-06       Mar-09      Mar-12   Mar-15
                                                                        Westpac
                                                                          Fiji
New Zealand economics growth
          %                                                                         %
     5                                                                                    5
              Quarterly % change                             Westpac
     4                                                       forecast                     4
              Annual average % change
     3                                                                                    3

     2                                                                                    2

     1                                                                                    1

     0                                                                                    0

     -1                                                                                   -1
                                   Source: Stats NZ, Westpac Economics

     -2                                                                                   -2
       2005     2009          2013                2017                   2021
                                                                                Westpac
17
                                                                                  Fiji
Australia: the growth mix

          ppts           contributions to GDP growth, yr end                 ppts
     3           2016   2017       2018f         2019f            2020f               3

     2                                                                                2

     1                                                                                1

     0                                                                                0

           * includes   ** mining
     -1      housing      investment
                                                                                      -1

                                Sources: ABS, Westpac Economics
     -2                                                                               -2
          Consumer* Mining ** Non-mining          Public     Net exports   GDP
                              investment
                                                                            Westpac
18
                                                                              Fiji
Australia: growth expected to moderate

          % ann                                                              % ann
     7                                                                                   7
                         GDP   GDP per capita                               Fc/s to
     6                                              period averages         end 2019     6
                                                      3.7%, 2.7%
     5                                                                                   5
     4                                                                                   4
     3                                                                                   3
     2                                                                                   2
     1                                                                                   1
     0                                                                                   0
                                  period averages         Latest: GDP, 3.4%yr
     -1   Sources: ABS,           2.5%, 1.1%
                                                                                         -1
          Westpac Economics                               GDP per capita, 1.8%yr
     -2                                                     -2
      Jun-92 Jun-96 Jun-00 Jun-04 Jun-08 Jun-12 Jun-16 Jun-20
                                                                               Westpac
19
                                                                                 Fiji
World growth firmer holding in 2018

                               2015        2016        2017       2018(e)       2019(f)     2020(f)
     Australia                  2.5         2.6         2.2          3.3          2.7          2.8
     New Zealand                3.5         4.0         2.8          2.8          3.1          2.9
     Fiji                       3.8         0.7         3.0          3.2          3.4          3.2
     US                         2.9         1.5         2.3          2.9          2.5          1.7
     Euro                       2.1         1.8         2.5          2.0          1.5          1.5
     Japan                      1.4         0.9         1.7          1.1          0.8          0.7
     China                      6.9         6.7         6.9          6.3          6.1          6.0
     India                      8.2         7.1         6.7          7.2          6.9          6.8
     NIE’s*                     2.1         2.3         3.1          2.8          2.5          2.4
     World                      3.5         3.2         3.8          3.8          3.6          3.5
     *NIE are Newly Industrialised Economies – Republic of Korea, Hong Kong SAR, Taiwan Province of
     China, and Singapore.

                                                                                              Westpac
20
                                                                                                Fiji
Outlook for crude oil –
   in 2017/18 demand ran
   ahead of supply but a
   correction is unfolding.

21 21
Non-OPEC driving recovery in supply

          mbpd                                                            mbpd
     67                                                                                67
     62                                                                                62
     57                                                                    EIA
                                                                           forecasts
                                                                                       57
     52                                                                                52
     47                                                                                47
                                 Non OPEC        OPEC
     42                                                                                42
     37                                                                                37
     32                                Sources: Bloomberg, EIA, Westpac
                                                                                       32
                                                   Economics
     27                                                                                27
      Jul-04 Jul-06 Jul-08 Jul-10 Jul-12 Jul-14 Jul-16 Jul-18
                                                                          Westpac
22
                                                                            Fiji
OPEC’s disrupted producers

           mbpd                                                                mbpd
     5.0                                                                                 5.0
           Sources: Bloomberg, EIA,                       Venezuela
           Westpac Economics
     4.5                                                  Angola                         4.5
     4.0                                                  Iran                           4.0
     3.5                                                                                 3.5
     3.0                                                                                 3.0
     2.5                                                                                 2.5
     2.0                                                                                 2.0
     1.5                                                                                 1.5
     1.0                                                                                 1.0
     0.5                                                                                 0.5
       Jul-04     Jul-06       Jul-08   Jul-10   Jul-12     Jul-14    Jul-16   Jul-18
                                                                               Westpac
23
                                                                                 Fiji
Change OPEC & non-OPEC crude production
          Outlook under new policies 2016 to 2040
                         The production outlook to 2040 goes through two distinct phases: non-OPEC sources
          mb/d          dominate near-term increases, but OPEC is increasingly relied upon in the longer term.
     10                                                                                                          50%
                 OPEC             Non-OPEC                     Share of OPEC l (right axis)

      8
                                          Sources: IEA World Energy Outlook 2017,
                                          Westpac Economics
                                                                                                                 45%
      6

      4                                                                                                          40%

      2
                                                                                                                 35%
      0

     -2                                                                                                          30%
           2000- 2005- 2010- 2015- 2020- 2025- 2030- 2035-
            05    10    15    20    25    30    35    40
                                                                                                     Westpac
24
                                                                                                       Fiji
Change in oil product demand
          Outlook under new policies 2016 to 2040
                                         Kerosene and petrochemical feedstocks register the largest demand
           mb/d                        growth; diesel demand increases, while demand for gasoline declines.
     3
            Sources: IEA World Energy Outlook 2017,
            Westpac Economics

     2

     1

     0

     -1
           gasoline    heavy      other  ethane             diesel       LPG        naphtha kerosene
                       fuel oil products
                                                                                                   Westpac
25
                                                                                                     Fiji
The Fiji Economy –
It has been another positive
year but risks remain.

                               Westpac
                                 Fiji
26
Fiji on path for +9 years of expansion
                   Natural disasters remain a key risk going forward. The potential threat of global warming
          %                             may increase intensity & frequency of storms.                           %
     6                                                                                                                6
                          Actual                            5.6
                                                                                          Cyclones
     5                    Forecast RBF        4.7
                                                                                           Josie &
                                                                                                                      5
                   Cyclone                                                                  Keni
                                                                3.8
     4             Tomas
                                                                                                      3.4
                                                                                                                      4
                                                                                 3.0          3.2              3.2
                    3.0
     3                       2.7
                                   Cyclone
                                                                                                                      3
                                    Evan
     2                               1.4
                                                                                                                      2
     1                                                                   0.7                                          1
     0           Cyclone
                                                                                                                      0
                  Gene
     -1                                                                                                               -1
          -1.4                                                Sources: Reserve Bank of Fiji, Westpac Economics
     -2                                                                                                               -2
          2009               2011             2013             2015              2017               2019
                                                                                                            Westpac
27
                                                                                                              Fiji
Fiji GDP per capita US$4,780

          %                                                                        %
     6                                                                                   6
                  5.0    Actual
     5                   Forecast ADB
                                                                                         5
           4.1
     4                                            3.4
                                                                                         4
                         3.3
                                                                    3.0
     3                                                                           2.7     3
     2                                                                                   2
     1                                                                                   1
     0                                                                                   0
                                  -0.2
     -1                                                                                  -1
                                         Sources: Asian Development, Westpac Economics
     -2                                                                                  -2
           2013   2014   2015     2016            2017         2018         2019
                                                                              Westpac
28
                                                                                Fiji
The mix of Fijian growth

                              Share of
                               GDP             2015       2016       2017       2018(e)

     Cane                       1.2%            0.7%      –24.8%     17.6%       0.0%
                                                1,844kt    1,387kt    1,631kt    1,631kt

     Sugar                      1.0%           –2.2%      –37.1%     29.3%      –5.0%
                                                222kt      140kt      180kt      171kt

     Visitor Arrivals           5.6%            9.0%       5.0%       6.4%       3.5%*
                                                 755k       792k       843k       479k

     Cement                     0.4%           18.1%      10.9%      –19.8%     –21.8%*
                                                328kt      367kt      292kt      149kt

     Gold                       1.3%            9.5%      13.7%      –6.0%       9.0%*
                                                42k oz     48k oz     45k oz     25k oz

     Electricity                1.9%            3.8%       3.5%       6.5%       0.3%*
                                              893k Mwh    924k Mwh   984k Mwh   579k Mwh

     Fiji                                        3.8        0.7        3.0        3.2
     * 7 months January to July, % change on same period last year
     Sources: Reserve Bank of Fiji, Westpac Economics
                                                                                   Westpac
29
                                                                                     Fiji
Fiji consumption spending is holding up

                                  2014          2015      2016       2017       2018(e)
      Net VAT                     5.7%          12.4%     –26.9%    13.9%       11.1%*
                                  $794.2m       $893.0m   $652.8m   $734.7m      $450.6m

      Domestic VAT                8.0%          19.2%     –21.8%     4.8%        9.1%*
                                  $517.7m       $617.3m   $482.7m   $505.9m     $4300.8m

      New consumption             70.2%          2.3%     9.7%      12.1%       21.4%*
      lending                     $848.6m       $868.0m   $952.4m   $1,038.1m    $648.0m

      New vehicle sales           25.3%        –15.9%     28.3%     11.1%       44.1%*
                                   3,457         2,908     3,732      4,148       3,030

      New vehicle                 15.8%         –9.5%     27.5%     12.5%       14.3%*
      registrations                4,264         3,860     4,490      5,051       3,300

         ex government            8.0%          –2.7%     21.0%     12.5%       14.3%*
                                   3,813         3,711     4,490      5,051       3,333

      2nd hand vehicle            66.9%         43.0%     7.8%       –30.2       9.7%*
      registrations                6,582         9,414     10,152     7,088       4,276

     * 7 months January to July, % change on same period last year
      Sources: Reserve Bank of Fiji, Westpac Economics
                                                                                   Westpac
30
                                                                                     Fiji
Fiji investment is more mixed

                                2014           2015          2016         2017        2018(e)
     New investment
                               11.3%          77.7%         –10.3%       58.0%        –2.6%*
     lending
     Cement sales              17.6%          42.2%          11.1%        7.5%        –23.7%*
                                                                                        Q1 2018
                                No 7.0%        No 6.7%      No –0.4%     No 0.8%
     Building permits         Value 10.6%     Value 2.7%   Value 11.2% Value 40.1%
                                                                                        No 2.2%
                                                                                      Value 26.9%
                                                                                        Q1 2018
                                No 7.9%        No 2.6%       No 4.3%      No 5.9%
     Completions              Value 99.8%    Value –5.3%   Value –20.0% Value 25.6%
                                                                                       No 15.0%
                                                                                      Value 84.0%
     Construction
                                5.6%           5.1%          11.7%       16.8%        10.5%(f)
     sector growth
     * 7 months January to July, % change on same period last year
     Sources: Reserve Bank of Fiji, Westpac Economics

                                                                                          Westpac
31
                                                                                            Fiji
Fiji trade balance, deficit continues

               F$M * Excluding aircraft
         0

     -1,000

     -2,000

     -3,000

                 Sources: Fiji Bureau of Statistics, Reserve Bank of Fiji, Westpac Economics
     -4,000
              2000 2002 2004 2006 2008 2010 2012 2014 2016e 2018f
                                                                                               Westpac
32
                                                                                                 Fiji
Visitor arrivals by source

           thousands
     900    Others                      Asia       Sources: Fiji Bureau of Statistics,
                                                                Westpac Economics
     800    Europe and North America    New Zealand
            Australia
     700
     600
     500
     400
     300
     200
     100
       0
           2010    2011     2012       2013      2014        2015        2016        2017
                                                                                         Westpac
33
                                                                                           Fiji
US dollar strength to hold to mid 2019

           2011=100                                           2011=100
     135                                                                   135
                  DXY                CNY
                  AUD/USD            NZD/USD
     120                                                                   120
                  FJD/USD

     105                                                                   105

     90                                                                    90

     75                                                                    75
                      Sources: Bloomberg, Westpac Economics
     60                                                                    60
      Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
                                                                 Westpac
34
                                                                   Fiji
Outlook is positive with some risks
     • US is starting out from a robust position, China tightening credit &
       continues to focus on environmental and structural improvements,
       Australia outperformed expectations but New Zealand growth has
       moderated. US interest rates are rising and tighter liquidity conditions
       will maintain a strong US dollar narrative.
     • Watch crude oil; while we think prices should ease in 2019 the risks to
       this view are asymmetric in the near term.
     • Trading partner growth remains positive in 2019 & 2020 but to slow as
       Australian faces modest income growth & a housing correction, New
       Zealand growth remains constrained while tighter policy and possibly
       the trade dispute with the US results in slower Chinese growth.
     Outlook for Fiji.
     • Domestic growth supported by consumption spending, investment
       boosted by government capital spending, major sectors are generally
       positive outside of sugar, low core inflation will keep rates on hold &
       foreign reserves should be adequate.                   Westpac
                                                               Fiji
35
Sci-Fi of my youth is here now.

36
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