Drop in GDP due to large jump last year

Business, Normal

The National, Friday October 9th, 2015


THE seven per cent drop in real GDP growth for the country next year is because there was such a large jump last year and this year with the start of the LNG production and sales, an economist says. 

ANZ’s South Asia, ASEAN and Pacific chief economist Glenn Maguire in a presentation on the bank’s economic outlook “PNG and Effects of Commodity Prices” said the country’s growth would be 10 per cent this year and three per cent in 2016. 

Commenting on this, Institute of National Affairs executive director Paul Barker said if LNG prices had remained strong, 2015 would have had a higher growth rate than it did.

But prices for oil and therefore also other energy products fell heavily in late 2014. 

“Early commencement of production and sales of LNG in 2014 allowed PNG’s growth to rise more than forecast in 2014, especially as the early sales on the spot market were at high prices.

“But the later sales on fixed contracts were at lower prices, and then the falling oil/gas prices hit further into 2015,” Barker said. 

He explained that the higher growth rate contributed to the lower growth rate in 2015 (as the growth had already happened) and then continued lower commodity prices for other products.

In addition, the el Niño and closure of the Ok Tedi mine further contributed to declining growth this year.

“But because the growth this year has increased the overall size of the economy, there’s nothing in the pipeline to lift it significantly further next year,” he said.

“And there’s no major further construction project expected until about 2017, if the Total-led (Papua LNG), next LNG project, starts building pipelines and facilities, which is likely but certainly not certain at this stage.

“Having had several years of budget deficit, the Government is now heavily in debt and therefore not in the position to sustain the level of deficit-financing (in the absence of major new private sector activity or investment at this stage) to boost economic activity and employment to the extent that it has in recent years.

“With better policies to encourage business and investment there would be more private sector investment and diversification, which is needed, but that requires major costs of public goods and services, including through competition is required.”