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The combined real Gross Domestic Product (GDP) of Pacific island countries and Timor-Leste grew by 5.1 per cent during 2008, almost double the 2007 rate (2.8 per cent) and the highest level of economic growth this decade. This regional average, however, was largely due to strong economic performance in Timor-Leste, Papua New Guinea (PNG), Solomon Islands and Vanuatu. Most other countries grew at less than two per cent.

The impact of the global recession on the region has been significant, with many countries experiencing downward revisions of their growth outlook. Countries projected to maintain positive but slowing economic growth in 2009 are Federated States of Micronesia (FSM), Kiribati, Nauru, PNG, the Republic of the Marshall Islands, Timor-Leste, Tonga and Tuvalu, while others are facing an economic contraction (Cook Islands, Fiji, Palau and Samoa). The global recession is having an impact on Pacific island countries through the following transmission channels: lower prices and reduced demand for commodity exports; slower growth in tourism; declines in remittances; significant falls in the value of offshore national trust funds; and lower levels of foreign direct investment (FDI).

Remittances are a major source of income and a safety net for the poor in some Pacific island countries. In Tonga, Samoa and Kiribati, officially recorded remittance flows are equivalent to 39 per cent, 23 per cent and nine per cent respectively of these countries’ GDP, respectively. The volume of remittances to the region has steadily increased from USD$163 million in 2000 to USD$446 million in 2008. Remittances, however, remain largely concentrated in Fiji, Samoa and Tonga. In 2008, these three countries accounted for 89 per cent of all remittances to the region. Aid is still more important than remittances for the region as a whole, but in Tonga, Samoa and Fiji remittances were more than double aid flows in 2007.