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
#2018FABF www.fabc.com.fj www.afbc.org.au
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
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
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Information in this presentation correct as at May 2018
Global Economy & Trade
China, USA, NZ & Australia
Outlook/risk for crude oil
Fiji economy
Westpac
5
FijiUS 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
FijiThe global economy
performed better than
expected in 2018
Westpac
FijiGlobal 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
FijiUS 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
FijiUS 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
FijiUS 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
12US interest rates & the Fed chair.
Westpac
13
FijiChina 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
FijiChina’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
FijiChinese 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
FijiNew 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
FijiAustralia: 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
FijiAustralia: 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
FijiWorld 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
FijiOutlook 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
FijiOPEC’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
FijiChange 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
FijiChange 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
FijiThe Fiji Economy –
It has been another positive
year but risks remain.
Westpac
Fiji
26Fiji 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
FijiFiji 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
FijiThe 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
FijiFiji 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 $648.0m
New vehicle sales 25.3% –15.9% 28.3% 11.1% 44.1%*
3,457 2,908 3,732 4,148 3,030
New vehicle 15.8% –9.5% 27.5% 12.5% 14.3%*
registrations 4,264 3,860 4,490 5,051 3,300
ex government 8.0% –2.7% 21.0% 12.5% 14.3%*
3,813 3,711 4,490 5,051 3,333
2nd hand vehicle 66.9% 43.0% 7.8% –30.2 9.7%*
registrations 6,582 9,414 10,152 7,088 4,276
* 7 months January to July, % change on same period last year
Sources: Reserve Bank of Fiji, Westpac Economics
Westpac
30
FijiFiji investment is more mixed
2014 2015 2016 2017 2018(e)
New investment
11.3% 77.7% –10.3% 58.0% –2.6%*
lending
Cement sales 17.6% 42.2% 11.1% 7.5% –23.7%*
Q1 2018
No 7.0% No 6.7% No –0.4% No 0.8%
Building permits Value 10.6% Value 2.7% Value 11.2% Value 40.1%
No 2.2%
Value 26.9%
Q1 2018
No 7.9% No 2.6% No 4.3% No 5.9%
Completions Value 99.8% Value –5.3% Value –20.0% Value 25.6%
No 15.0%
Value 84.0%
Construction
5.6% 5.1% 11.7% 16.8% 10.5%(f)
sector growth
* 7 months January to July, % change on same period last year
Sources: Reserve Bank of Fiji, Westpac Economics
Westpac
31
FijiFiji trade balance, deficit continues
F$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
FijiVisitor 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
FijiUS 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
FijiOutlook 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
35Sci-Fi of my youth is here now. 36
Important Disclaimers
Things you should know persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents.
Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141 (‘Westpac’). The investments to which this communication relates are only available to and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such investments will be engaged in only with, relevant persons. Any person
Disclaimer who is not a relevant person should not act or rely upon this communication or any of its contents. In the same way, the
This material contains general commentary, and market colour. The material does not constitute investment advice. information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined
Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial by the rules of the Financial Conduct Authority and is not intended for “retail clients”. With this in mind, Westpac expressly
risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice prohibits you from passing on the information in this communication to any third party. In particular this communication
before proceeding with any investment decision. This information has been prepared without taking account of your and, in each case, any copies thereof may not be taken, transmitted or distributed, directly or indirectly into any restricted
objectives, financial situation or needs. This material may contain material provided by third parties. While such material is jurisdiction. This communication is made in compliance with the Market Abuse Regulation (Regulation(EU) 596/2014).
published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy The material may contain investment recommendations, including information recommending an investment strategy.
or completeness of any such material. Although we have made every effort to ensure the information is free from error, Reasonable steps have been taken to ensure that the material is presented in a clear, accurate and objective
none of Westpac or its related entities warrants the accuracy, adequacy or completeness of the information, or otherwise manner. Investment Recommendations for Financial Instruments covered by MAR are made in compliance with Article 20
endorses it in any way. Except where contrary to law, Westpac and its related entities intend by this notice to exclude MAR. Westpac does not apply MAR Investment Recommendation requirements to Spot Foreign Exchange which is out of
liability for the information. The information is subject to change without notice and none of Westpac or its related entities scope for MAR.
is under any obligation to update the information or correct any inaccuracy which may become apparent at a later date. Unless otherwise indicated, there are no planned updates to this Investment Recommendation at the time of
The information contained in this material does not constitute an offer, a solicitation of an offer, or an inducement to publication. Westpac has no obligation to update, modify or amend this Investment Recommendation or to notify the
subscribe for, purchase or sell any financial instrument or to enter a legally binding contract. Past performance is not a recipients of this Investment Recommendation should any information, including opinion, forecast or estimate set out in
reliable indicator of future performance. Whilst every effort has been taken to ensure that the assumptions on which the this Investment Recommendation change or subsequently become inaccurate.
forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks Westpac will from time to time dispose of and acquire financial instruments of companies covered in this Investment
and uncertainties. The ultimate outcomes may differ substantially from these forecasts. Recommendation as principal and act as a market maker or liquidity provider in such financial instruments.
Country disclosures Westpac does not have any proprietary positions in equity shares of issuers that are the subject of an investment
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). This material is provided to you solely for recommendation.
your own use and in your capacity as a client of Westpac. Westpac may have provided investment banking services to the issuer in the course of the past 12 months.
Westpac does not permit any issuer to see or comment on any investment recommendation prior to its completion and
For XYLO Foreign Exchange clients: This information is provided to you solely for your own use and is not to be distribution.
distributed to any third parties. XYLO Foreign Exchange is a division of Westpac Banking Corporation ABN 33 007 457 141 Individuals who produce investment recommendations are not permitted to undertake any transactions in any financial
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