05-11-2008, 04:06 PM
12/05/2008 11:06:39 a.m.
The International Monetary Fund (IMF) in its World Economic Outlook published in April 2008 has estimated that the rate of growth of the global economy will contract from 4.9% in 2007 to 3.7% in 2008.
The IMF has forecast that the US economy will slow down from a growth of 2.2% in 2007 to a growth rate of only 0.5% in 2008 following a mild recession. At the same time it estimates that the Australian economy would also slow down from a growth rate of 3.9% in 2007 to a growth rate of only 3.2% in 2008. The New Zealand economy is projected to grow by only 2% in 2008 compared to 3% in 2007.
The rate of unemployment in the United States is forecast to increase in 2008 to 5.4% from 4.6% in 2007. The rate of unemployment in Australia is forecast to improve to 4.3% in 2008 from 4.4% in 2007 but the rate of unemployment in New Zealand is forecast to increase to 4.1% in 2008 compared to 3.6% in 2007.
These three countries account for nearly 100% of the remittances that Tonga receives each year. The Asian Development Bank Key Indicators show that between 2004 and 2006 total annual remittances ranged between US$80 million and US$92 million. This is equivalent to T$160 million and T$184 million.
Recent statistics releases support the IMF forecasts.
The US unemployment rate fell slightly in April to 5% from 5.1% in March. However this compares with an unemployment rate in April 2007 of 4.5%.
Perhaps what is more worrisome for the Tongan economy is that the unemployment rate in the state of California increased to 6.2% in March 2008 compared to 5% in March 2007, a change of 1.2 percentage points.
Hawaii showed a similar trend with its rate of unemployment growing from 2.5% in March 2007 to 3.1% in March 2008, a change of 0.6 percentage points over the year.
A similar trend occurred in Washington State where the rate of unemployment increased from 4.4% in March 2007 to 4.9% in March 2008.
It is estimated that the majority of the Tongan community in the United States live in Hawaii, California, and Washington State. This community provides at least 50% of the total remittances received every year, which is approximately T$90 million.
Evidence is emerging that as the global economy begins to slow, countries that normally receive remittances are also affected.
The Inter American Development Bank announced on 30 April that a poll, conducted in February 2008 among 5,000 Latin American adults living in the 50 states and the District of Columbia, showed that only 50% of the respondents were still sending money on a regular basis to their families, down from 73% in a similar poll conducted in 2006.
The principal causes for this drop cited by migrants were the slowdown in the U.S. economy and the harsher climate against immigration.
In a similar vein, the Mexican central bank also reported on 30th April that Mexican migrant workers sent less money home in the first quarter of this year compared to a year ago.
This decline follows several months in which the remittances have been growing more slowly and underlines Mexico’s potential vulnerability to the economic slowdown in the US according to media reports.
These outcomes have serious implications for the Tongan economy.
The remittances sent from abroad come from relatives who, based on anecdotes, are employed mostly in the service industries such as caregivers, construction workers and electricians.
The economic slowdown in the US in particular, is attributed to the subprime crisis which focuses on the housing sector. Bank lending for housing has slowed to a trickle and tens of thousands of US families have lost their homes as a consequence of repossession by banks.
As the slowdown in the US continues, reports indicate that many families are cutting back on consumer spending, and deferring planned spending on other large ticket items. This is going to affect the service industry, the very industry where most Tongans are employed in California, Washington State and Hawaii. Unemployment reports from these states are therefore of particular interest to Tonga. And the news is clearly not encouraging.
The next question then is whether remittances from Australia and New Zealand can pick up the slack. Again, the IMF forecasts are not encouraging. Both countries’ economies are forecast to slow marginally in 2008 with either stable or slightly higher unemployment.
Private sector economists are beginning to talk of higher unemployment in both countries depending on the length and depth of the impact of the subprime crisis in the US. For example, ANZ economists are quoted as suggesting that unemployment in New Zealand might double to between 6 and 7 per cent if the international credit crunch turns critical.
The likelihood of remittances from Australia and New Zealand increasing to offset any decline of remittances from the US is therefore not very strong.
What then does this mean for the economy in 2008?
Remittances are important, firstly, because they help to maintain the level of consumption of recipients in an economy which does not generate strong domestic economic activity through, for example, exports. Secondly they are important because they finance the purchase of private sector imports which form the basis of much of government revenue through customs duties and excise taxes.
Any slowdown in remittances will result in the contraction of domestic demand for imported goods by recipients causing a lowering of the standard of living, particularly for lower income families which have no other means of cash income.
Anecdotal evidence suggests that Tongans in the US who had entered into agreements to purchase Tongan handicraft and fine mats have begun to cancel the arrangements.
And it will lower the level of imports and therefore the level of government revenue, through lower customs duties and excise tax collection.
Source: http://www.tongareview.com/Article.aspx?ID=5596
The International Monetary Fund (IMF) in its World Economic Outlook published in April 2008 has estimated that the rate of growth of the global economy will contract from 4.9% in 2007 to 3.7% in 2008.
The IMF has forecast that the US economy will slow down from a growth of 2.2% in 2007 to a growth rate of only 0.5% in 2008 following a mild recession. At the same time it estimates that the Australian economy would also slow down from a growth rate of 3.9% in 2007 to a growth rate of only 3.2% in 2008. The New Zealand economy is projected to grow by only 2% in 2008 compared to 3% in 2007.
The rate of unemployment in the United States is forecast to increase in 2008 to 5.4% from 4.6% in 2007. The rate of unemployment in Australia is forecast to improve to 4.3% in 2008 from 4.4% in 2007 but the rate of unemployment in New Zealand is forecast to increase to 4.1% in 2008 compared to 3.6% in 2007.
These three countries account for nearly 100% of the remittances that Tonga receives each year. The Asian Development Bank Key Indicators show that between 2004 and 2006 total annual remittances ranged between US$80 million and US$92 million. This is equivalent to T$160 million and T$184 million.
Recent statistics releases support the IMF forecasts.
The US unemployment rate fell slightly in April to 5% from 5.1% in March. However this compares with an unemployment rate in April 2007 of 4.5%.
Perhaps what is more worrisome for the Tongan economy is that the unemployment rate in the state of California increased to 6.2% in March 2008 compared to 5% in March 2007, a change of 1.2 percentage points.
Hawaii showed a similar trend with its rate of unemployment growing from 2.5% in March 2007 to 3.1% in March 2008, a change of 0.6 percentage points over the year.
A similar trend occurred in Washington State where the rate of unemployment increased from 4.4% in March 2007 to 4.9% in March 2008.
It is estimated that the majority of the Tongan community in the United States live in Hawaii, California, and Washington State. This community provides at least 50% of the total remittances received every year, which is approximately T$90 million.
Evidence is emerging that as the global economy begins to slow, countries that normally receive remittances are also affected.
The Inter American Development Bank announced on 30 April that a poll, conducted in February 2008 among 5,000 Latin American adults living in the 50 states and the District of Columbia, showed that only 50% of the respondents were still sending money on a regular basis to their families, down from 73% in a similar poll conducted in 2006.
The principal causes for this drop cited by migrants were the slowdown in the U.S. economy and the harsher climate against immigration.
In a similar vein, the Mexican central bank also reported on 30th April that Mexican migrant workers sent less money home in the first quarter of this year compared to a year ago.
This decline follows several months in which the remittances have been growing more slowly and underlines Mexico’s potential vulnerability to the economic slowdown in the US according to media reports.
These outcomes have serious implications for the Tongan economy.
The remittances sent from abroad come from relatives who, based on anecdotes, are employed mostly in the service industries such as caregivers, construction workers and electricians.
The economic slowdown in the US in particular, is attributed to the subprime crisis which focuses on the housing sector. Bank lending for housing has slowed to a trickle and tens of thousands of US families have lost their homes as a consequence of repossession by banks.
As the slowdown in the US continues, reports indicate that many families are cutting back on consumer spending, and deferring planned spending on other large ticket items. This is going to affect the service industry, the very industry where most Tongans are employed in California, Washington State and Hawaii. Unemployment reports from these states are therefore of particular interest to Tonga. And the news is clearly not encouraging.
The next question then is whether remittances from Australia and New Zealand can pick up the slack. Again, the IMF forecasts are not encouraging. Both countries’ economies are forecast to slow marginally in 2008 with either stable or slightly higher unemployment.
Private sector economists are beginning to talk of higher unemployment in both countries depending on the length and depth of the impact of the subprime crisis in the US. For example, ANZ economists are quoted as suggesting that unemployment in New Zealand might double to between 6 and 7 per cent if the international credit crunch turns critical.
The likelihood of remittances from Australia and New Zealand increasing to offset any decline of remittances from the US is therefore not very strong.
What then does this mean for the economy in 2008?
Remittances are important, firstly, because they help to maintain the level of consumption of recipients in an economy which does not generate strong domestic economic activity through, for example, exports. Secondly they are important because they finance the purchase of private sector imports which form the basis of much of government revenue through customs duties and excise taxes.
Any slowdown in remittances will result in the contraction of domestic demand for imported goods by recipients causing a lowering of the standard of living, particularly for lower income families which have no other means of cash income.
Anecdotal evidence suggests that Tongans in the US who had entered into agreements to purchase Tongan handicraft and fine mats have begun to cancel the arrangements.
And it will lower the level of imports and therefore the level of government revenue, through lower customs duties and excise tax collection.
Source: http://www.tongareview.com/Article.aspx?ID=5596