[Source: Tourism Fiji/ Facebook]

ANZ in its new research on Fiji titled ‘Balancing the Economy’ has stated that beyond 2023 and over the medium-term, they see the Fijian economy slowing to around three percent per year.

Research author and International Economist Kishti Sen says tourism is running at full capacity and with limited investment in hotel room inventory over the last decade, Fiji does not have much capacity to accommodate more visitors in the next few peak seasons than it saw this year.

Sen stresses this will cap the upside to tourism’s contribution to the economy until new capacity comes onstream.

Importantly, he adds a sea change in the direction of interest rates has been effectively confirmed in key trading partner countries, especially Australia and New Zealand.

The long phase of rates falling then being very low prior to and during COVID-19 has given way to rapidly rising rates, with implications for the economy and consumer demand.

Sen adds that with the “sticky” CPI inflation due to very low unemployment rates, interest rates in key markets are expected to sit at current levels through 2024 and may rise again if GDP remains strong and the unemployment rate is slow to rise to its non-inflation adding rate of four to five percent.

Added to this, Sen says consumers have largely run down the savings buffers they built in the pandemic years.

For example, he says Australians saved an extra AUD140bn in 2020 with household savings lifting to AUD338bn from AUD198bn in 2019.

In June 2023, the rolling four-quarter savings had dropped to AUD219bn.

According to Sen, consumers could maintain spending levels by saving less of their income, but the “fat” in the savings ratio has largely disappeared.

He says the Australian household savings ratio is back to its pre-pandemic level.

However, Sen stresses that they are not suggesting the Fijian economy will fall off a cliff in the medium term.

He adds they are simply highlighting that households in key markets will probably be more budget conscious in 2024 than in 2023.

And that means less discretionary spending, including overseas holidays.

So, the big boost in tourism numbers that Fiji saw in 2022 and 2023 may not be replicated in 2024.

He forecasts that Fiji may well get a million visitors next year, but that will represent growth of 6.4% as opposed to 47.8% this year.

Sen further states that softer overseas economic conditions due to consumers tightening their purse strings will likely impact on remittances.

He also says that offshore employment opportunities could be impacted too, as both Australia and New Zealand back-fill their workforce gaps by boosting net overseas migration numbers.

That according to Sen will also impact the flow of private funds back to Fiji.

The net result is that Fijian households will become conservative, and that will weigh on consumer demand.

However, the ANZ Economist says business investment will do better next year.

While building approvals have been soft in the first half of 2023, it will likely turn the corner late this year.

This he says should see construction activity gain momentum in 2024.

Sen says ANZ’s forecast is for the Fijian economy to grow by 3.3% in 2024 and 3.1% in 2025.

To avoid swings and roundabouts in economic performance due to its dependence on international tourism, Sen suggests that Fiji can accelerate its transition to a more balanced economy by diversifying away from tourism.