Pacific Economies Face Slower Growth as World Bank Warns External Shocks Becoming 'New Normal'

Without stronger growth and job creation, economists warn the region could face rising unemployment, outward migration pressures and widening social inequalities.

Pacific economies are expected to slow further in 2026 as rising fuel costs, shipping disruptions and growing global uncertainty place renewed pressure on trade-dependent island nations, according to the World Bank Group's latest Pacific Economic Update.

The report projects regional economic growth will ease to 2.8 percent in 2026, warning that repeated external shocks — from fuel price spikes and supply chain disruptions to climate-related crises and global market volatility — are no longer temporary setbacks but are becoming the region's "new normal."

The World Bank says Pacific countries remain among the most vulnerable economies globally due to their heavy dependence on imported fuel, limited domestic production, geographic isolation and exposure to global shipping disruptions. In many Pacific nations, oil imports account for between 15 and 25 percent of total merchandise imports, making economies highly sensitive to energy price shocks and freight cost increases.

The update warns that continuing instability in global fuel and shipping markets is likely to weaken growth even further over the next six to nine months, adding pressure to government budgets, businesses and households already grappling with rising living costs.

Despite these risks, the report argues the Pacific still has a limited but important opportunity to reshape its economic future by moving beyond constant crisis response and investing in stronger economic foundations capable of generating more productive jobs and long-term resilience.

At the center of the report is a new "jobs-first" development strategy focused on expanding employment opportunities for the region's rapidly growing youth population, while improving economic resilience through stronger infrastructure, better public services and enhanced private sector growth.

"The Pacific's current growth model is no longer creating enough opportunities for the region's growing and increasingly young populations," said Stephen N. Ndegwa, World Bank Group Division Director for the South and North Pacific.

"Average growth across Pacific economies is projected to remain around 2 percent this decade, below the pace of the 2010s, while too many young people are still struggling to access productive work," Ndegwa said. "Creating more and better jobs, especially for women and youth, will be critical to building resilience and supporting stronger long-term growth in a more uncertain world."

The report notes that Pacific governments are entering a period of increasing demographic pressure, with larger numbers of young people reaching working age each year while formal employment opportunities remain limited in many island economies.

Without stronger growth and job creation, economists warn the region could face rising unemployment, outward migration pressures and widening social inequalities.

To address these risks, the World Bank recommends major investments in the foundations of economic productivity, including:

• Reliable water systems

• Energy infrastructure

• Transport connectivity

• Digital infrastructure

• Skills development and education

• Improved business conditions and market access

• Expanded access to finance and private investment

The report identifies several sectors with strong potential to generate jobs at scale across the Pacific, including tourism, fisheries, agribusiness, health and care services, climate-resilient infrastructure and digitally delivered services.

One of the report's strongest messages is the growing importance of reliable water systems as a driver of economic growth and resilience.

The World Bank argues that water insecurity is increasingly constraining growth across multiple industries, particularly tourism, agriculture, fisheries and services, where unreliable water access directly affects productivity, investment and business continuity.

The findings align closely with the recently launched Water Forward initiative, which highlights water security as a central economic challenge for Pacific island countries facing climate stress, aging infrastructure and rising operational costs.

According to the report, many Pacific water utilities continue to struggle with:

• Aging infrastructure

• Intermittent water supply

• High rates of water loss

• Rising maintenance and energy costs

• Limited financing capacity

These challenges are increasing financial pressure on households and businesses while reducing economic efficiency across critical sectors.

The report emphasizes that stronger and safer water systems could significantly improve productivity, reduce business interruptions, strengthen public health and expand opportunities for women and young people, who are often disproportionately affected by unreliable services.

"Reliable water systems can be a foundational driver of economic growth and opportunity across the Pacific," the report states.

World Bank Senior Economist and report author Eka Vashakmadze said resilience alone will not be enough for Pacific economies to withstand future shocks unless countries strengthen economic management and invest in long-term growth drivers now.

"The Pacific has shown extraordinary resilience through repeated shocks, but resilience alone is not enough," Vashakmadze said. "Countries that invest now in reliable services, stronger economic management, and the conditions for businesses to grow will be better placed to create opportunities and withstand future shocks."

The report also warns that repeated crises over recent years — including the COVID-19 pandemic, natural disasters, inflation shocks and global economic instability — have significantly weakened fiscal buffers across many Pacific countries.

As governments face rising debt servicing costs and tighter international financing conditions, the World Bank is urging stronger public financial management and more targeted fiscal support measures.

Rather than broad-based subsidies that can quickly exhaust limited government resources, the report recommends temporary and targeted assistance aimed at protecting the most vulnerable households while preserving fiscal sustainability.

Economists say the findings reflect a broader shift in development thinking across the Pacific, where resilience is increasingly viewed not only through the lens of disaster response, but also through economic diversification, stronger institutions and improved infrastructure capable of supporting inclusive growth.

The Pacific Economic Update ultimately argues that the region's long-term prosperity will depend on whether governments can successfully transition from short-term crisis management toward deeper structural reforms that create sustainable jobs, attract private investment and strengthen the foundations of economic stability in an increasingly volatile global environment.