Solomon Islands: Country Economic Forecast: 28 Oct 2011

In 2010 GDP increased by 7.1%, following a contraction of 2% in 2009 on the back of the global financial crisis. During the first half of 2011 the economy has been able to maintain this strong momentum; the volume of copra output doubled and the production of timber logs increased by nearly 50% year-on-year in 2011H1. In addition, gold output, cocoa and the fish catch also grew very strongly during the same period. Overall, we expect GDP growth of 7.5% in 2011, before slowing down to 3.5% next year. The surge in output of many of the country's main export products, combined with higher commodity prices in international markets, has generated rapid export growth in 2011. This has more than offset rising imports resulting from higher fuel costs and increased purchases of machinery. The current account deficit is expected to shrink from over 25% of GDP in 2010 to less than 16% this year. Since early 2009 the country's foreign exchange reserves have climbed from US$80mn to US$350mn now. The three-month average annual inflation rate rose to 7.9% in July from 7.3% in June. The increase in July was heavily influenced by a rise in imported prices, which were up 8.5% on a year ago. We anticipate that inflation will average 7.8% in 2011 before moderating to 4.5% next year, helped by easing global commodity prices and the strengthening in the exchange rate (up about 8% since January).