Basseterre - Oct. 24, 2011 -- The economic growth outlook for the Eastern Caribbean Currency Union (ECCU), has been revised downwards, with real growth for 2011 now projected at 0.4 per cent.

The Eastern Caribbean Central Bank (ECCB) told the 71st Meeting of the Eastern Caribbean Currency Union on Friday that macroeconomic and financial conditions of the ECCU continue to be greatly challenged by the adverse global financial and economic situation.

A communiqué issued after the meeting stated that the sub-region experienced two consecutive years of negative growth - 2009 and 2010 and although economic activity in the ECCU improved in the second quarter of this year following a 0.2 per cent contraction in the first quarter, growth for 2011 has been revised downwards.

“Available data suggest that economic activity picked up somewhat in the second quarter. Growth was largely driven by a 6.5 per cent increase in tourist arrivals in the second quarter relative to the number recorded in the second quarter of 2010. In addition, a recorded increase in imports of building and construction materials, coupled with an increase in commercial bank credit for home construction and renovation, suggests that construction activity was at a higher level relative to the second quarter of the previous year,” said the communiqué.

It added: “With the advanced economies continuing to perform below expectations, challenged by fiscal stresses, financial sector instability and pessimistic consumers, the near-term macroeconomic and financial outlook for the ECCU area remains highly uncertain, with significant downside risks.”

“Moreover, elevated unemployment rates and weak payroll growth in the advanced economies will restrict growth in tourism, a major export sector in the ECCU. Accordingly, the growth outlook for the ECCU has been revised downwards, with real growth for 2011 now projected at 0.4 per cent,” said the communiqué following the meeting chaired by Premier of Montserrat, the Hon. Reuben Meade.

During the second quarter ending June 2011, liquidity in the banking system continued to improve due largely to increases in grant and official inflows. Commercial bank deposits rose by 1.4 per cent, roughly the same as the outturn in the second quarter of 2010 and credit growth continued to be sluggish at 0.4 per cent, but this is consistent with the weak economic activity over the review period and also reflects tighter loan terms and conditions in the commercial banking sector.

The ECCU stated that commercial bank lending rates remained elevated despite the continuous rise in liquidity reflecting a higher credit risk premium attached to lending as the economic conditions impact businesses and consumers.

The foreign reserves of the Central Bank expanded by 5 per cent, relative to an expansion of 2.5 per cent in the comparable period of 2010 due to grant and loan inflows and an improved performance by the tourism industry.

It also said that the ratio of gross foreign assets to demand liabilities, (the backing ratio for the EC dollar), rose to 96 per cent per cent at the end of June 2011 from 94.8 per cent at the end of the second quarter of 2010. This is well above the statutory level of 60 per cent and the operational target of 80 per cent.