AUGUST 23, 2022
The economic growth outlook for Brunei Darussalam is cautiously optimistic but with significant downside risks. This was highlighted by the Centre for Strategic and Policy Studies (CSPS) in its August issue of the Brunei Economic Update.
It said despite a steep contraction in the first quarter of this year, the Brunei economy is still projected to grow modestly in 2022.
Growth is largely supported by downstream oil and gas sector as external demand firms with a rebound in services activity following a full re-opening of the economy. These activities should more than offset the decline in oil and gas production.
The emergence of more virulent and vaccine-resistant COVID-19 variants, although a tail risk, remains a threat to economic recovery. Heightened inflationary pressures could persist if global supply disruptions are not resolved, in turn undermining the rebound in domestic demand. Unanticipated domestic oil and gas supply disruptions also present a material downside risk to the outlook.
The report also said the Sultanate’s economy contracted by 4.2 per cent year-on-year (y-o-y) in first quarter (Q1) of 2022 following declines in the previous five quarters, primarily due to lower crude oil, natural gas and liquefied natural gas (LNG) production. Growth in the services sector slowed amid the third COVID-19 wave but the downstream oil and gas sector recorded strong growth.
Consumer prices in Brunei have continued to increase, mirroring global developments, but administrative measures and the Sultanate’s currency peg have helped to contain inflationary pressures. Fiscal and trade positions have continued to improve thanks to higher oil and gas prices.
Brunei’s inflation rate surged to 3.9 per cent y-o-y in April, reaching its highest level in more than 25 years. In particular, food prices have soared, which hurt the poor more as they spend a larger share of their income on food.
The report also said, global inflation has risen sharply over the past year, largely driven by pent-up consumer demand after the COVID-19 pandemic amid supply bottlenecks, which has been exacerbated by the conflict in Ukraine.
Global growth slowed markedly in the first half of 2022 owing to the economic disruptions from COVID-19 resurgences brought by the Omicron variant at the start of the year, adverse spillovers from the invasion of Ukraine, and the withdrawal of policy support amid high inflation. Although global mobility has continued to improve, global industrial production and retail sales declined in recent months. Economic sentiment has deteriorated following the outbreak of the conflict in Ukraine.
High inflation has continued to weigh on real household incomes which, coupled with heightened uncertainty, has contributed to weaker consumer confidence. Low income households have been disproportionately affected as the increase in expenditure resulting from recent spikes in food and energy prices represents a relatively larger share of total spending.