By: Bernadette Carreon
According to the June Pacific Economic Update by the World Bank, economic growth in the Pacific Islands is projected to decelerate in 2025. This slowdown is primarily due to worsening global financial conditions and slower worldwide growth.
The update also indicates that tourism growth in countries such as Palau and Samoa is expected to slow down in 2025.
Additionally, these Pacific nations are likely to be affected by “slower global growth, policy uncertainty, and increased tariffs, which could result in an average growth decline of approximately 0.2 percentage points in 2025,” the update stated.
The situation appears bleak if trade policies become more restrictive, as this could further impact exports, tourism, and remittances. Aid cuts are also affecting the Pacific region, with the World Bank reporting that cumulative grant inflows are equivalent to nearly 40 percent of gross national income in the Republic of the Marshall Islands and the Federated States of Micronesia, about 35 percent in Tuvalu, and 20 percent in Palau.
While the Republic of the Marshall Islands and the Federated States of Micronesia rely more on the United States, other countries in the region are more exposed to geographically closer nations such as Australia, China, Japan, and New Zealand.
Palau’s growth is projected to be downgraded by 2.4 percentage points in 2025, reflecting its vulnerability to decreased demand in the tourism sector. Tourism has been the primary driver of the delayed economic rebound in the Pacific Island countries.
The World Bank reports that in 2024, an estimated 1.4 billion tourists traveled internationally, marking a near-complete recovery to pre-pandemic levels and an 11 percent increase over 2023. East Asia and the Pacific, with 316 million tourists, continued to experience a rapid recovery in 2024; however, arrival numbers were still 13 percent lower than pre-pandemic levels.
“This delayed recovery of East Asia and Pacific tourists has particularly benefited Palau, which heavily relies on travelers from Asia, “ the update said.
According to the update. In terms of account deficits, Palau returned to its pre-pandemic deficit levels in 2024, which the World Bank attributes to a delayed but substantial recovery in tourism.
The World Bank also noted that increasing female employment rates in the Pacific could yield positive economic returns and higher GDP.