Caribbean Development Bank: 2009 Economic Background and 2010 Prospects
http://www.caribbeanpressreleases.com/articles/6267/1/Caribbean-Development-Bank-2009-Economic-Background-and-2010-Prospects/Page1.html
S Coward
By S Coward
Published on 31-Jan-10
Bridgetown -- Jan.31, 2010 --Preliminary estimates indicate that economic output contracted in most regional economies in 2009, reflecting the lagged impact of the global financial crisis and economic recession.
Sharply declining tourist arrivals
Bridgetown -- Jan. 31, 2010 -- Preliminary estimates indicate that economic output contracted in most regional economies in 2009, reflecting the lagged impact of the global financial crisis and economic recession. Indications are that only four Borrowing Member Countries (BMCs) recorded positive GDP growth in 2009 – Belize, Guyana, Haiti and Montserrat. Among the other BMCs, real GDP in Anguilla contracted by more than a quarter, after a prolonged period of high construction-led growth that was fuelled by FDI. Antigua and Barbuda and Cayman Islands recorded declines that were in excess of 5%, while the real output contraction among most of the remaining BMCs was between 1 and 4%.
The main transmission channels of the crisis to regional economies were sharply declining tourist arrivals and a fall-off in FDI, which negatively affected investment in tourism-related construction projects, reducing output and employment in both the tourism and construction sectors. In addition, the financial crisis adversely affected offshore sector activity in all major jurisdictions and threatened the soundness and stability of regional financial sectors. In the face of these exogenous shocks, Belize and Guyana have shown some resilience. However, the majority of regional economies are highly dependent on tourism and other services and have therefore proved to be much more vulnerable.
The associated impacts have been so adverse that these economies have had to seek external financing to mitigate the effects on foreign exchange reserves and liquidity levels in the banking system, as well as to improve fiscal and debt sustainability. However, with credit ratings reflecting these impacts and global financing conditions remaining tight, countries have tapped the regional capital market and various financing facilities offered by the Multilateral Finance Institutions (MFIs) including the Caribbean Development Bank (CDB). In addition, some countries have turned to non-traditional sources of financing for similar macroeconomic support, as well as for grant resources to finance development efforts. Poised to become an additional source of development finance for the Region, the CARICOM Development Fund commenced operations on August 24th, 2009, marking a critical milestone in the regional integration process.
Real Sector: Tourism
Generally, stay-over arrivals declined across the Region, with double-digit falls being posted by most destinations amid weak source market demand and reduced airlift. This was also reflected in significantly lower visitor expenditure. Conversely, cruise passenger arrivals have remained buoyant, with several countries reporting increases in excess of 15%. However, since stay-over arrivals typically account for the majority of visitor spending, the net effect on tourism value added of these divergent trends has been negative. This divergence appears to be a continuation of a substitution effect that has been observed in recent years. Tourists are increasingly opting for the cruiseship over the stay-over format, apparently based on the perception that it offers better value for money – a factor that is even more critical in the context of the global downturn. Jamaica has been the only major tourism destination to buck the regional trend: increased stay-over arrivals in that country have been attributed to the diversion of tourists away from Mexico due to the Influenza AH1N1 virus outbreak, as well as aggressive marketing and discounting. On the whole, arrivals from Canada increased, and most of these travelled to Jamaica. However, with the US and Europe being larger source markets, the impact of declines in stay-over arrivals from these markets dominated sector trends.
Construction
The slump in construction activity that began in 2008 continued into 2009 due to persistent weakness in FDI inflows for tourism-related projects, which had underpinned construction and overall growth during the lead-up to and hosting of Cricket World Cup (CWC) in 2007. The effects of the fall-off in FDI on private sector-led construction activity was exacerbated in some countries by reductions in public sector spending on capital projects due to limited fiscal space. Even though some governments were able to finance accelerated capital works programmes through grant inflows, e.g. Dominica, construction activity still declined sharply. The main exceptions were Guyana and Belize, where construction activity was a key factor in those countries recording overall economic growth, albeit at a reduced pace.
DOWNLOAD FULL DOCUMENT
The main transmission channels of the crisis to regional economies were sharply declining tourist arrivals and a fall-off in FDI, which negatively affected investment in tourism-related construction projects, reducing output and employment in both the tourism and construction sectors. In addition, the financial crisis adversely affected offshore sector activity in all major jurisdictions and threatened the soundness and stability of regional financial sectors. In the face of these exogenous shocks, Belize and Guyana have shown some resilience. However, the majority of regional economies are highly dependent on tourism and other services and have therefore proved to be much more vulnerable.
The associated impacts have been so adverse that these economies have had to seek external financing to mitigate the effects on foreign exchange reserves and liquidity levels in the banking system, as well as to improve fiscal and debt sustainability. However, with credit ratings reflecting these impacts and global financing conditions remaining tight, countries have tapped the regional capital market and various financing facilities offered by the Multilateral Finance Institutions (MFIs) including the Caribbean Development Bank (CDB). In addition, some countries have turned to non-traditional sources of financing for similar macroeconomic support, as well as for grant resources to finance development efforts. Poised to become an additional source of development finance for the Region, the CARICOM Development Fund commenced operations on August 24th, 2009, marking a critical milestone in the regional integration process.
Real Sector: Tourism
Generally, stay-over arrivals declined across the Region, with double-digit falls being posted by most destinations amid weak source market demand and reduced airlift. This was also reflected in significantly lower visitor expenditure. Conversely, cruise passenger arrivals have remained buoyant, with several countries reporting increases in excess of 15%. However, since stay-over arrivals typically account for the majority of visitor spending, the net effect on tourism value added of these divergent trends has been negative. This divergence appears to be a continuation of a substitution effect that has been observed in recent years. Tourists are increasingly opting for the cruiseship over the stay-over format, apparently based on the perception that it offers better value for money – a factor that is even more critical in the context of the global downturn. Jamaica has been the only major tourism destination to buck the regional trend: increased stay-over arrivals in that country have been attributed to the diversion of tourists away from Mexico due to the Influenza AH1N1 virus outbreak, as well as aggressive marketing and discounting. On the whole, arrivals from Canada increased, and most of these travelled to Jamaica. However, with the US and Europe being larger source markets, the impact of declines in stay-over arrivals from these markets dominated sector trends.
Construction
The slump in construction activity that began in 2008 continued into 2009 due to persistent weakness in FDI inflows for tourism-related projects, which had underpinned construction and overall growth during the lead-up to and hosting of Cricket World Cup (CWC) in 2007. The effects of the fall-off in FDI on private sector-led construction activity was exacerbated in some countries by reductions in public sector spending on capital projects due to limited fiscal space. Even though some governments were able to finance accelerated capital works programmes through grant inflows, e.g. Dominica, construction activity still declined sharply. The main exceptions were Guyana and Belize, where construction activity was a key factor in those countries recording overall economic growth, albeit at a reduced pace.
DOWNLOAD FULL DOCUMENT