According to BANDAR SERI BEGAWAN – Center of Strategic and Policy Studies (CSPS), Brunei’s economy is expected to see a gradual recovery in 2022 despite a steep contraction of 4.2% in the first quarter of this year. increase.

In its August 2022 Brunei Economy Update, the think tank said it had a “cautiously optimistic” outlook for growth but warned of significant downside risks.

The downstream oil and gas sector is expected to continue to drive economic growth as external demand increases, while the service sector is expected to recover after the economy fully reopens.

Strong growth is reported in petrochemical manufacturing in the first quarter of 2022, with the start-up of ammonia and urea in the Brunei fertilizer industry expected to boost downstream earnings.

Earlier this year, CSPS predicted that the Sultanate would end its recession and post positive growth of 3.7% in 2022.

By contrast, the International Monetary Fund last month forecast Brunei’s economy to grow at a slower rate of 1.2% on the back of easing public health restrictions and rising energy prices.

CSPS said increased downstream earnings “should more than offset lower oil and gas output.”

Graphics: CSPS

Negative growth in Q1 2022 is due to sharp contractions in oil and gas extraction (-7.8%) and LNG production (-12.8%).

Crude oil production fell to 101,600 barrels per day from 114,900 barrels per day in the first quarter. Meanwhile, LNG production fell to 732,400 million British Thermal Units (mmbtu/d) from 891,300 mmbtu/d over the same period.

The drop in production was driven by a surge in Brent oil prices, which topped $100 a barrel for the first time since the Russian-Ukrainian war began in February 2014.

Maintenance and reclamation activities have been cited as the cause of the continued decline in Brunei’s upstream oil and gas production.

Crude oil and natural gas no longer dominate Brunei’s exports, as the hydrocarbon sector fell by 4.5% last year and other petrochemicals now dominate exports.

The contraction in the first quarter meant that Brunei had posted its sixth consecutive quarter of negative growth amid the COVID-19 pandemic, resulting in lockdowns and lower economic activity.

Brunei had previously experienced such growth outcomes when the economy contracted for seven straight quarters from Q3 2013 to Q1 2015.

Graphics: CSPS

CSPS said two key downside risks contributed to the weak growth in the first quarter. The emergence of a more virulent Omicron variant and further disruption of domestic oil and gas production.

“The emergence of more virulent and vaccine-resistant COVID-19 variants is a tail risk, but still a threat to economic recovery.

“Unexpected domestic oil and gas supply disruptions pose significant downside risks to the economy. [growth] outlook,” the report added.

Elsewhere, the fishing sector continued to expand by 15% in the first quarter, following double-digit growth in the previous seven quarters.

The air transport sector is also gradually recovering as borders reopened for non-essential travel in May after a sharp contraction over the past two years due to the pandemic.

Graphics: CSPS

Card surplus?

Brunei’s financial situation is projected to improve significantly, and could even see a small surplus if oil prices remain high, according to think tanks.

“Crude oil and LNG prices rose on the back of a recovery in global demand in the second half of 2021, and rose even more sharply after the war in Ukraine heightened supply concerns,” it added.

In the first quarter of 2022, Brunei’s fiscal position remained in deficit due to increased government spending, but CSPS said a fiscal balance or surplus is possible due to rising oil prices.

Earlier this year, the government gave a more pessimistic outlook on easing the budget deficit, saying spending is expected to outpace revenues for the fourth consecutive fiscal year.

Graphics: CSPS

Inflation hits 25-year high

Inflation in Brunei surged to 3.9% in April, the highest in more than 25 years, before declining slightly to 3.8% in May.

Global supply chain pressures from the war in Ukraine and prolonged lockdowns in major Chinese cities are pushing food prices higher.

However, CSPS said price controls and subsidies have helped keep inflation in check, including for electricity and petrol prices.

“Additionally, the tightening of monetary policy by the Monetary Authority of Singapore supported a strong Singapore dollar, which in turn supported a stronger Brunei dollar on the currency peg, helping to keep import inflation in check,” the think tank said.

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