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Pacific—Global economic uncertainty has mixed impact
Growth in the Pacific was forecast to accelerate to 3.4% in 2025 and 3.7% in 2026, from 1.9% in 2024, prior to new tariffs being announced in April. However, Pacific economies face asymmetric outlooks in the face of global trade uncertainty and slowdown (Chart). Most are insulated from the direct effects of US tariffs, with exports weighted towards Asia and Oceania. Some exporters also benefit from products with few direct substitutes. However, exporters in Fiji, Nauru and Vanuatu face uncertainty while respective ‘reciprocal’ tariffs of 32%, 30% and 23% are paused.
Despite lower prices for most commodities, Pacific exporters are supported by continued high cocoa and coffee prices, while record gold prices support producers in PNG, Solomon Islands and Fiji. The outlook for PNG—Australia’s largest export market in the Pacific—is further strengthened by higher copper production, improved prospects for new energy projects, kina depreciation and easing foreign currency shortages. Weaker demand for international tourism is expected to dampen prospects for Palau, Fiji and Vanuatu, however, countercyclical remittance flows support the outlook for Tonga and Samoa. Reconstruction efforts following recent natural disasters in Vanuatu will support economic growth. Most Pacific economies will benefit from lower global fuel prices, which constitute a substantial share of imports.
Risks abound for the small, open economies of the Pacific. Price volatility is expected to persist, potentially amplified by currency movements. To the extent that USD weakness continues, economies using or pegged to the US dollar will face higher imported food costs and interest on USD denominated debt. Conversely, Pacific economies using or weighted towards the AUD and NZD may prove insulated, but debt denominated in other currencies (e.g. CNY, JPY and EUR) introduces additional risk. Further risks include ever-present natural hazards and political volatility.
