Rising US tariffs and growing global trade tensions are expected to indirectly drag down economic growth in Pacific Island countries, the International Monetary Fund (IMF) warns, as ripple effects from larger economies impact tourism, remittances, and investment flows.
“For most Pacific Island countries, the direct effects of the tariffs are likely to be small, because goods exports to the US are small,” said Nada Choueiri, IMF Deputy Director for the Asia & Pacific Department.
“But there will be indirect effects on growth, via the tariff’s negative impact on the economies of major trading partners, such as Australia, New Zealand, Asian economies, and of course the US itself,” said Choueiri in an interview with PACNEWS.
Choueiri noted that the blow would be hardest in economies that rely heavily on tourism and remittances. Some countries may also feel the impact through financial channels.
“Sharp adjustments in equity markets may affect the performance of sovereign wealth funds in some Pacific Island countries, in which case this reduces important buffers that the Pacific Island countries depend on for longer term economic sustainability,” she said.
According to the IMF’s latest projections, growth across the Pacific Islands will soften in 2025. “The typical downward revision to expected growth in 2025 because of the trade tensions is about 0.2 percentage points,” Choueiri said.
“In the case of Fiji, it’s about 0.4 percentage points – the US is a major destination for Fiji’s goods exports, and Fiji is very dependent on tourism,” she said.
However, she stressed the outlook remains uncertain. “These projections are subject to significant uncertainty – the situation is complex and very fluid.”
Other unexpected shocks have also shaped the growth outlook.
“When you compare the projections for 2025 in our latest World Economic Outlook database with the projections made in October last year, you will see some large changes,” she said.
“Vanuatu experienced the terrible earthquake, for example. There are also some upward revisions – growth in PNG has been revised up, in part because of increased gold production and prices,” Choueiri told PACNEWS.
On inflation, Choueiri said that while global oil prices are expected to fall, the local impact may be mixed.
“We expect global oil prices to be lower this year than previously expected, because of lower global demand. All else being equal, we might also see cheaper manufactured goods diverted from other markets,” she explained.
But domestic prices in the Pacific will depend on exchange rates and market dynamics.
“Should we see a depreciation of the local currency, this would counteract some of the reductions in global prices,” she said.
“It could also be that businesses aren’t able to pass on much price reduction, as they seek to preserve margins as demand falls. At this stage, it’s very uncertain,” said Choueiri.
