Brunei’s economy will continue to grow at 1.0 per cent in 2019 as forecast in the Asian Development Outlook (ADO), a new report released by the Asian Development Bank (ADB) stated on Wednesday.
In an update of its flagship annual economic publication, ADO 2019, ADB retained its forecast of real gross domestic product (GDP) growth for Brunei of 1.0 per cent this year and 1.5 per cent in 2020. In April this year, ADB also said that the Sultanate’s GDP was 1.0 per cent.
The ADB report said in the first quarter (Q1) of 2019, GDP contracted by 0.5 per cent year-on-year as weaker domestic investment and exports more than onset consumption that exceeded expectations. Exports of goods and services declined by 3.2 per cent by volume, disappointing earlier hopes for a major turnaround, while investment, having risen by a whopping 28 per cent in 2018 grew by only 1.0 per cent in Q1 of 2019.
Private consumption was a bright spot in an otherwise gloomy view from the demand side, rising by 4.9 per cent in Q1.
By sector, significant recovery in services in Q1 of 2019 was overwhelmed by declines in agriculture, continuing a trend from 2016, and industry, which contracted by 2.3 per cent, largely reflecting a 2.5 per cent decline in oil and gas and 3.3 per cent shrinkage in construction.
Within the oil and gas industry, liquefied natural gas and methanol output was down by 6.5 per cent and oil and gas mining contracted by 1.0 per cent.
Economic activity aside from petroleum and construction rose by 2.8 per cent, lifted by 9.4 per cent growth in financial services and wholesale and retail trade.
Unexpected strength in domestic consumption in Q1 should continue for the rest of the year. Further, Q1 weakness in domestic investment may reverse as the government continues to pursue economic diversification through a programme of investment in priority areas like information and communication technology and downstream petroleum industries.
Export volume should recover, especially in Q3 and Q4. Encouragingly, some major repairs to oil refineries begun in 2018 have recently reached completion, which should allow a steady rise in oil and natural gas production and exports.
The Hengyi refinery recently purchased a second batch of crude oil for production trials, suggesting that the facility may officially come online in Q3 of 2019, as long anticipated.
In sum, the growth slowdown suffered in Q1 is likely to reverse in the remaining three quarters, yielding 1.0 per cent GDP growth in 2019 as a whole, as forecast in ADO 2019. Consumer prices declined by 0.5 per cent year on year on average in the first seven months of 2019, confounding an assertion in April that 0.1 per cent inflation in 2018 signalled the country’s emergence from a multiyear deflationary trend.
Lower prices stemmed largely from unexpected weakness in international food prices, as Brunei Darussalam is a net food importer.
The inflation forecast for 2019 is therefore lowered from 0.2 per cent in ADO 2019 to 0.1 per cent. In the first six months of the year, exports rose by 8.4 per cent in US dollar terms, while imports rose by 11.1 per cent. These trends materialised largely as foreseen in April.
This update therefore retains the ADO 2019 forecast for a current account surplus equal to 13 per cent of GDP this year and next. On regional front, ADB said Southeast Asia is hard hit by persistent trade friction between the People’s Republic of China and the US, slowing world trade, and weakening global growth.
The sub-regional GDP growth forecast is downgraded by 0.4 percentage points for this year and by 0.3 points for next year.
With softer growth comes lower inflation but, as imports slow along with exports, little revision to an earlier forecast for a slightly narrower regional current account surplus.
Forecast for sub-regional GDP growth is now revised down from 4.9 per cent in ADO 2019 to 4.5 per cent for this year from 5.0 per cent to 4.7 per cent for 2020.
Growth forecasts are downgraded from April for half of the 10 economies in the sub region – Indonesia, the Lao People’s Democratic Republic, the Philippines, Singapore, and Thailand – and unchanged for the other half, with Brunei Darussalam, Cambodia, Malaysia, Myanmar, and Vietnam on track to meet ADO 2019 forecasts.
The factors that dim prospects include steep declines in export growth, weaker domestic investment, and agriculture subdued by drought under El Niño. Meanwhile, domestic consumption held up well across the sub region, and this cushioned the slowdown. Trade is the main problem.
With escalation in the trade conflict between the People’s Republic of China and the US, weakening global economic activity and trade, and a cyclical downturn in electronics, export growth slowed significantly in the first half of the year across the sub region, except in Cambodia and Myanmar.
The ASEAN+3 Regional Economic Outlook (AREO) released on July this year by the ASEAN+3 Macroeconomic Research Office (AMRO) forecast the sultanate’s GDP growth of 2.1 per cent this year and 2.0 per cent next year.
The International Monetary Fund in its World Economic Outlook report in April this year said Brunei’s economy is projected to grow steadily in the next few years.
The GDP is slated to grow at 4.8 per cent this year, 6.6 per cent in 2020 and 2.2 per cent in 2024.