French Polynesia's Growth To Moderate In 2024

Key View

• After a robust post-pandemic rebound, we believe growth in French Polynesia will moderate amid emerging capacity constraints and less favourable base effects.
• Tourism will remain an important driver of growth, while easing inflationary pressures will support consumption and investment activity.
• Risks are tilted slightly to the downside given French Polynesia's dependence on tourism and exposure to external shocks.

We expect slower growth in French Polynesia in 2024 as a robust post-pandemic recovery loses some momentum. Latest national accounts data show real GDP growth accelerated to 4.5% in 2022, the fastest clip since 2005, on the back of a strong rebound in tourism after Covid-19 border restrictions were lifted. Preliminary data suggest the recovery continued in 2023, albeit at a more moderate pace as the economy surpassed its pre-pandemic output and tailwinds from statistical base effects faded. We estimate that growth eased to 3.1% in 2023 and will continue to moderate to 2.5% in 2024 as capacity constraints and a weaker external backdrop weigh on economic activity.

We believe the tourism sector will remain an important engine of growth in 2024, though at a much slower pace than over the previous two years. Latest figures show tourist arrivals during 2023 reached 261,813, 10.6% higher than the level recorded in 2019. However, growth in arrivals slowed to 0.6% y-o-y in Q423 and we believe growth in 2024 will be capped by higher base effects and capacity constraints. In addition, our forecasts for slower growth in 2024 in key source markets such as the US and France implies softer demand for long-distance travel over the coming year. Moreover, the 2024 budget, which was approved in December, includes a reduction in tax exemptions for tourist accommodation developments, which may slow efforts to expand capacity in the sector. On the other hand, the sector will likely continue to benefit from tailwinds such as hosting the surfing competition during the 2024 Olympic Games (held in Paris) and the ongoing expansion of flight connections.

As tourism activity stabilises we expect that private consumption will return as a leading contributor to overall GDP growth. This will partly be down to the positive follow-through benefits of increased tourism on local businesses and employments, which should support growth in household incomes. Indeed, the statistics office reports that employment reached record highs in Q223 (latest available data), while latest surveys show consumer confidence increased sharply in Q323, with around 50% of households stating that they expected their economic situation to improve over the next six months. Moreover, we expect easing inflationary pressures will provide a modest boost to consumer purchasing power over the coming quarters. After rising sharply to average 6.4% in 2022, inflation declined to an estimated average of 3.3% in 2023 and we forecast that it will continue to fall slightly to 3.0% in 2024.

After adding an estimated 3.7 percentage points (pp) to growth in 2022, we believe net exports will subtract 0.1pp and 0.6pp from headline GDP growth in 2023 and 2024, respectively. This reflects both an anticipated slowdown in export growth from tourism due to capacity constraints as well as robust import growth in line with the ongoing recovery in domestic demand. 

Risks To Outlook

We maintain our view that the risks to our short-term forecasts remain tilted slightly to the downside, largely due to exogenous factors. A sharper slowdown in global growth or a resurgence in commodity prices due to instability in the Red Sea would dampen the outlook for economic activity in French Polynesia. A high dependency on tourism also leaves the local economy vulnerable to any shocks or natural disasters that disrupt air or sea travel. More persistent inflation would also increase the likelihood that central banks hold interest rates higher for longer, with tighter monetary conditions therefore remaining a headwind for consumption and investment activity.