The economic outlook for the Pacific region is more positive for 2011 on the back of continued global recovery, buoyed by the strength of Australia's economy and higher commodity prices. Most Pacific countries will experience slightly lower growth rates in 2012, says the Asian Development Bank (ADB) in a new report.

The Asian Development Outlook 2011 (ADO 2011 projects that the economies of ADB's 14 Pacific developing member countries will expand by an average 6.3% in 2011, up from 5.3% last year. It forecasts growth of 5.4% for the region next year, largely because of a moderation in growth in Papua New Guinea (PNG) - one of the largest economies in the region - after its projected strong expansion in 2011.

Still, the report warns of the challenges from inflation in the Pacific, as elsewhere in Asia.

"While the Pacific economies are improving, governments must not be complacent about high fuel and food prices"," said Changyong Rhee, ADB's Chief Economist. "Good government policy will maximize wins from high export prices and minimize the losses from higher prices of rice, wheat, and oil which must be imported."

The ADO 2011, ADB's flagship economic publication, warns that inflation is projected to increase in 13 of the Pacific countries this year, due to high global food and fuel prices for these import-dependent economies. Overall, inflation in the region is forecast at 6.5% in 2011 before moderating to 5.6% in 2012.

"The more positive economic outlook for the Pacific region on the back of global recovery will contribute to increased tourism and export earnings and remittances," said Robert Wihtol, Director General of ADB's Pacific Department. "Several economies will benefit from greater spending on public infrastructure."

The resource-rich PNG economy is forecast to grow by 8.5% in 2011 and then is expected to ease to about 6.5% in 2012. While PNG will feel the benefits of the liquefied natural gas project, price pressures will intensify this year in view of the demands on labor and resources from the LNG plant. Constraints are also apparent in construction and transport, and the property markets in Port Moresby and Lae.

Timor-Leste's economy is set to report double-digit growth of 10% in both 2011 and 2012. Higher oil prices are positive overall for the country, but they are fuelling rising prices. The ADO 2011 forecasts the country will see inflation of 7.5% in 2011, falling to 5.3% in 2012. Longer-term economic prospects rest on government investment in human and physical capital to spur private sector-led growth.

The report projects Vanuatu's economy to grow 4.2% in 2011 and 4.9% in 2012. Expansion in 2012 in Vanuatu would mark the country's 10th consecutive year of economic growth. The prolonged period of growth is attributable to increases in private investment, underpinned by policy reforms that included the opening up of the aviation and telecommunications markets.

ADB expects Nauru and the Solomon Islands to grow 4% in 2012. Phosphate exports are supporting Nauru's return to moderate economic growth, while a resumption in gold exports should offset a decline in logging in the Solomon Islands.

In 2012, Samoa's economy will grow by 3%, and the economies of Cook Islands, and Kiribati, will grow modestly at 2.5% and 2.0% respectively. Republic of Fiji's growth is expected to pick up somewhat from 0.5% in 2011 to 0.8% in 2012.