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Azlan Othman
Brunei Darussalam’s financial system contracted by 4.2 per cent year-on-year (y/y) in Q1 2022, following declines within the earlier 5 quarters. The nation had skilled such progress outcomes earlier than, when the financial system contracted for seven consecutive quarters from Q3 2013 Q3 to Q1 2015.
The 2 main draw back dangers which contributed to the weak point in Q1 – the emergence of the extra transmissible Omicron COVID-19 variant and continued disruptions to home oil and gasoline manufacturing – have been recognized within the August 2022 replace of the Brunei Financial Outlook 2022 report by the nation’s suppose tank, the Centre for Strategic and Coverage Research (CSPS).
DECLINE IN RETAIL SALES
In the meantime, home retail gross sales shrunk by 3.9 per cent y/y in Q1 2022, following declines within the previous two quarters. Equally, meals and beverage companies fell by 10.3 per cent y/y in Q1.
Nonetheless, on a quarter-on-quarter (q/q) foundation, retail gross sales have been 4.8 per cent increased than in This autumn 2021 whereas meals and drinks companies grew 19 per cent.
The q/q progress signifies a partial restoration from the sharp decline in actions through the second COVID-19 wave that started in August 2021, pushed by the Delta variant.
Pandemic-related restrictions have eased considerably since early March this yr. The progressive re-opening of the financial system ought to allow a sooner rebound of financial exercise within the second half of 2022, however cross-border spending leakages.
DOWNWARD TRAJECTORY OF OIL AND GAS PRODUCTION
The unfavourable progress in Q1 2022 was largely because of a pointy contraction in oil and gasoline mining (-7.8 per cent) and liquefied pure gasoline (LNG) manufacturing (-12.8 per cent).
Crude oil manufacturing fell to 101.6 thousand barrels per day (tbpd) from 114.9 tbpd in Q1 2021, whereas LNG manufacturing decreased to 732.4 thousand million British thermal models per day (mmbtu/d) from 891.3 thousand mmbtu/d.
The decline in upstream oil and gasoline manufacturing was attributed to upkeep and rejuvenation actions.
NEW AND EMERGING SOURCES OF GROWTH
Then again, sturdy progress was recorded within the downstream oil and gasoline sector, notably within the manufacturing of different petroleum and chemical merchandise (11.1 per cent).
The downstream sector is predicted to turn into the principle driver of progress going ahead.
After some delay, Brunei Fertilizer Industries Sdn Bhd started the manufacturing of ammonia and urea in January and exported merchandise to Thailand and Korea in February.
The fisheries sector additionally continued to broaden (15.0 per cent), following double-digit progress charges within the previous seven quarters.
After steep contractions over the previous two years, the air transport sector is step by step recovering with the resumption of non-essential journey.
IMPROVING FISCAL POSITION
Brunei’s fiscal deficit has narrowed considerably since Q2 2021 because of increased oil and gasoline receipts and tax income.
Crude oil and LNG costs have elevated following a restoration in international demand within the second half of 2021, and have risen much more sharply after the battle in Ukraine led to heightened provide considerations.
Brunei’s fiscal place remained in deficit in 2022 Q1 because of a rise in authorities expenditure, however is predicted to maneuver into stability or register a small surplus if power costs stay elevated.
GROWING TRADE SURPLUS
Gross merchandise exports have elevated, pushed largely by exports of crude oil, LNG, and different petroleum and chemical compounds merchandise.
The worth of oil and gasoline exports was bolstered by the rise in worldwide power costs, whereas exterior demand for downstream merchandise continues to extend and surpass pre-pandemic ranges.
Imports of mineral gas – feedstock for the manufacturing of refined petroleum merchandise – accounted for the biggest share of complete imports.
General, the commerce account stability has been in surplus since Q1 2021. The excess is predicted to develop amid strong demand.
SHARP RISE IN INFLATION
Headline inflation, as measured by the y/y per cent change within the client worth index (CPI), has risen sharply in current months, reflecting supply-side disruptions because of international crises.
Brunei’s inflation price surged to three.9 per cent in April – the best in additional than 25 years.
Inflation eased solely barely to three.8 per cent in Might.
Optimistic inflation charges have been recorded for 30 consecutive months since December 2019. The current worth will increase have been attributed to increased costs of meals (particularly greens, cooking oil, and meat), car purchases, air transport, and insurance coverage premiums.
Administrative measures, together with worth controls and subsidies, have helped maintain inflation in verify.
Electrical energy and petrol costs, as an illustration, have skyrocketed in lots of nations however stay unchanged in Brunei.
Furthermore, financial coverage tightening by the Financial Authority of Singapore has supported a powerful Singapore greenback, and therefore a powerful Brunei greenback owing to its forex peg, which has helped comprise imported inflation.
CAUTIOUSLY OPTIMISTIC GROWTH OUTLOOK, SIGNIFICANT DOWNSIDE RISKS
Regardless of a steep contraction in Q1, the Brunei financial system continues to be projected to develop modestly in 2022.
Progress is predicted to be largely supported by the downstream oil and gasoline sector as exterior demand companies and a rebound in companies exercise following a full re-opening of the financial system.
The emergence of extra virulent and vaccine-resistant COVID-19 variants, though a tail danger, stays a menace to financial restoration.
Heightened inflationary pressures might persist if international provide disruptions will not be resolved, in flip undermining the rebound in home demand. Unanticipated home oil and gasoline provide disruptions additionally current a fabric draw back danger to the outlook.
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