O’Neill paints rosy economic outlook for 2011

THE economic outlook for next year is positive with the PNG economy forecast to grow by 8%, significantly higher than the forecast of 7.1% for this year.
Treasurer Peter O’Neill said a significant factor underpinning this forecast was the assumption of strong mining activities and an increase in construction associated with the LNG project, which would have a direct impact on the construction and transport sectors.
He said the LNG project was expected to provide a significant boost to activity in other sectors of the economy with rising income and consumption from businesses and households.
O’Neill said the prices of PNG’s major export commodities had rebounded this year, supported by the strengthening global economy while the forecast acceleration in growth was largely driven by the expected ramp-up in LNG project construction and strong mining and agricultural production next year.
The prices of PNG’s major mineral exports of gold, copper and oil had risen well above this year’s budget forecast and were expected to remain at elevated level through the remainder of this year.
“These stronger commodity prices have led to improved business profitability and contributed to higher government revenue,” O’Neill said.
“However, risks with commodity markets still remain due to uncertainty in the global economy.
“While some of this recent price increases can be attributed to changes in economic fundamentals, there is concern that prices for some commodities were influenced by speculative behaviour and the weakening of the US dollar,” he added.
O’Neill said over the medium term, economic growth was projected to ease, especially in 2013, when LNG construction wound down.
In addition, declining production from maturing oilfields and slowdown of activities at the Ok Tedi gold mine, as it moves to closure in 2014, would have a negative impact on growth.
However, O’Neill was optimistic that by 2014 and 2015, LNG production would come on line, providing a large boost to the country’s gross domestic product.
He noted that the economy was increasingly seeing signs of capacity constraints after a long period of economic expansion with national infrastructure such as roads, ports and
utilities strained by increased and poor maintenance in the past.
He said businesses were also facing increasing difficulties in finding suitable labour and land.
This was now translating into bottlenecks with strong wages growth the cost of using and developing land.
O’Neill also highlighted some key factors that present a risk to the economy and fiscal outlook, including the fragility of the global economy posing a key risk to PNG in terms of its impact on the demand for PNG exports and commodities; delays to the PNG LNG and other mining projects due to landowner issues; and the government diverting from fiscal discipline.