While the global economy is projected to grow at 3.2% in 2024 and 3.3% in 2025
The Bhutanese economy is expected to grow by 9.6% in 2025 as compared to expected 6.1% in 2024, fuelled by the commissioning of Punatsangchu-II hydropower project, an expansion in the domestic demand, and a recovery in the tourism sector.
As per the latest update, the Ministry of Finance (MoF) stated that the economy grew by 4.9% in 2023 as compared to the 3rd quarter growth estimate of 4.5% in March 2024, an increase by 0.4 %.
This increase in the growth is mainly on account of better-than-anticipated performance in the industry sector, while agricultural and service sectors didn’t perform as well as estimated during the 3rd quarter update.
For instance, as of June 30, 2024, the agricultural sector grew by 1.4%, falling short of the earlier anticipated growth of 1.8%. This shortfall was primarily due to a decline of 1.9% in agricultural crop production, while livestock production and logging and forestry grew by 3.7% and 5.4%, respectively.
The agriculture sector is projected to witness a marginal growth of 1.5% in 2024 and 2025 due to the anticipated growth in the livestock production of 2.4 %, and forestry and logging of 3.1% in 2024 and 2025 respectively.
Similarly, the industry sector is expected to experience significant growth, with a projected increase of 7.7% in 2024 and 20% in 2025. This growth will be driven by the anticipated commissioning of the Punatsangchu-II and the lifting of loan moratoriums, which will boost activities in mining and quarrying with 7%, manufacturing with 2.9%, electricity with 5.6% and construction with 13.1%.
The industry sector showed only a marginal decline of 0.03% as against initial expectations to decline by 4.86% in the 3rd quarter update, This was largely due to improved performance in mining and quarrying, which grew by 37%, and in the manufacturing sector, which grew by 4.4 %.
However, the electricity and construction sectors experienced declines of 2.1% and 7.1%, respectively, due to reduced energy generation and decreased spending on construction activities.
As of the service sector, it is expected to grow by 5.4% in 2024 and 4.6% in 2025 due to projected rebound in tourism and related industries such as hotels and restaurants with 20.4%, transport with 7.4% and communications with 6%.
Additionally, the anticipated service sector growth in 2024 will be supported by improved performance in professional, administrative, and support services with 10.6%, as well as in entertainment, recreation, and other services with 0.6%.
According to the latest update, the Finance Ministry stated that the service sector experienced actual growth of 7.9% in 2023, lower than the 3rd quarter growth estimate of 10.7%.
This decline was mainly due to slower growth in wholesale and retail trade with 6%, transport and storage with 7.9%, public administration with 5.4%, education with 6.8%, and health with 6.3%, according to the Ministry.
Meanwhile, in the medium term, the economy is projected to exhibit a robust growth, supported by the government spending, hydropower investments, and interventions aimed at improving access to finance and boosting private sector participation through the Economic Stimulus Program.
However, the Ministry stated that the risks to this growth outlook may arise from the spillover effects of geopolitical tensions, which could disrupt supply chains in commodity and financial markets.
Meanwhile, the global economy is projected to grow at 3.2% in 2024 and 3.3% in 2025. These projections are primarily supported by upward revisions in the outlook for emerging markets and developing economies, particularly China and India.
The upward growth revisions for China and India are mainly due to strong economic performance, driven by robust domestic demand and high levels of trade and investment.
For instance, in Europe, the recovery of service sector is expected to play a key role in the region’s economic rebound and expected to grow at 0.9% in 2024.
However, in the second half of 2024, both the United States and Japan encountered unexpected challenges that impacted their economic growth. As a result, the growth projection for the US has been revised downward to 2.6% for 2024, 0.1 % point lower than the April, 2024 estimates, mainly due to a moderate consumer spending.
In Japan, the growth is revised downward to 0.7%, lower by 0.2 %age point in April, 2024, following temporary supply chain disruptions caused by a major automobile plant shutdown in the 1st quarter of 2024.
By Sherab Dorji, Thimphu
