July 21, 2020
BANDAR SERI BEGAWAN – Brunei think tank Centre for Strategic and Policy Studies (CSPS) has painted a less rosy economic outlook of the country this year, citing the COVID-19 pandemic and resulting slide in oil prices as reasons for slower growth.
Describing Brunei’s economic outlook as stable but uncertain, CSPS has revised downwards the country’s GDP growth to between one and two percent in its latest report.
In the Brunei Economic Update for July 2020, CSPS said economic growth in Q2 2020 is forecast to see a sharp slowdown as coronavirus control measures have put a damper on business activities.
“Downside risks to the outlook include a resurgence of [COVID-19] cases and renewed social distancing measures, as well as further declines in oil and gas prices that erode government revenues and hence set back fiscal spending,” CSPS said.
However, the think tank expects the Brunei economy to pick up in the second half of the year.
In March this year, the Department of Economic Planning and Development had projected GDP growth to rise between 4.9 percent to 7.1 percent in the 2020/2021 financial year, without taking into account the pandemic’s economic impact.
CSPS noted that the global economy is projected to contract by 4.9 to 6 percent in 2020 — the steepest decline in post-war history — despite unprecedented policy support.
While pandemic containment measures have “helped to limit the spread of COVID-19 and ease the strain on healthcare systems, they have severely restricted labour supply and disrupted production, as well as sharply curbed consumption and investment”, it said.
Dip in oil exports
In Q1 of 2020, Brunei’s economy grew 2.4 percent YoY, with a major boost from production at the Hengyi refinery and aromatics plant on Pulau Muara Besar.
Since production began in November 2019, the Chinese company has shipped $1.22 billion in petrochemical products, contributing to significant growth in the downstream sector.
However, CSPS also noted that Brunei’s export earnings from crude oil and liquefied natural gas hit a record low in April due to the oil crash and OPEC-directed output cuts.
The global oil glut is expected to continue to affect prices in 2020 with demand predicted to fall by nearly nine percent — an unprecedented decline.
Adding to oversupply concerns, major oil-producing countries are looking to increase production in August when coronavirus restrictions ease.
Tourism sector takes a hit
CSPS said there were sharp declines in the travel and tourism sectors in Q1.
Ninety percent of international flights to and from Brunei have been cancelled since the end of March, with Royal Brunei Airlines putting most of its 1,750 staff on “compulsory leave”.
Tourist arrivals, which had been on an upward trend before the pandemic struck, plunged by more than 70 percent year on year in March while hotel occupancy rates fell to 26.3 percent.
The air transport, travel agency and tour operator and hotel subsectors contracted 21.8 percent, 20 percent and 4 percent in Q1 year on year (YoY), respectively.
In Q1, the restaurant and retail trade subsectors also experienced a slowdown as growth dropped to -0.2 percent and 1.9 percent respectively due to public health control measures and voluntary social distancing.
Cost of goods, services nears 12-year high in May
The pandemic has also caused a rise in cost of goods and services as the consumer price index rose 2.5 percent YoY in May – the highest since October 2008.
The increase in inflation was largely attributed to higher prices of insurance premiums, air transport, vegetables, beverages and clothing.
“Global production and supply chain disruptions have led to higher prices of imported food items, household products and medical supplies, most widely seen in the price hikes of face masks and hand sanitisers,” CSPS said.
On the other hand, prices of accommodation services and holiday packages declined.
CSPS suggests new system to track economic activity in near real-time
The think tank has proposed building a national data visualisation platform that will help the government track economic activity in near real-time, similar to the use of artificial intelligence in Brunei’s public health surveillance.
CSPS said the pandemic has exposed the limitations of relying on economic indicators based on household and business surveys conducted by the government as they are only available after a “significant time lag”.
“Quantifying the immediate economic impact [of the pandemic] in near real-time is an important first step towards designing appropriate policies,” it said.
CSPS used Google search data to chart real-time indicators across industries as its relative search volume can shed light on consumer purchase intentions.
The data showed that COVID-19 and public health measures have a profound impact on consumer demand.
“Demand for [Google search terms] “flight”, “hotel”, “restaurant”, “mall”, “cinema”, and “sports” declined sharply from mid-March to May when COVID-19 cases surged and social distancing measures were most intense, but began to gradually recover in early June after the outbreak was under control and some measures were relaxed,” the think tank said.
Meanwhile, search queries for “zoom” and “delivery” jumped during the outbreak as students and employees used Zoom’s video conferencing software at home and more consumers sought delivery services for food and grocery purchases.
CSPS said a near real-time data visualisation system would result in more effective monitoring on the economic impact of the pandemic.
“As future waves of COVID-19 are anticipated, and with little prospect of a vaccine becoming widely available anytime soon, policymakers need to find a balance between public health interventions and preventing widespread economic hardship,” it added.