Monthly Economic and Financial Developments, December 2004

Published: Sunday January 30th, 2005

Compared to 2003, monthly economic activity firmed modestly during December, with further strengthening in private consumption expenditures supported by a comparative upturn in consumer lending, and robust construction activity upheld by significant reinsurance inflows and firmer growth in residential mortgages. Indications are that monthly tourism inflows were unchanged to marginally lower however, as visitor arrivals declined. Nevertheless, the respective stopover and cruise weakness in Grand Bahama and the Family Islands overstated projected expenditure losses, given the arrivals gains for New Providence where average spending per visitor is higher. In the monetary sector, the public sector's net financing needs contributed to a sizeable decrease in bank liquidity during the month. However, reduced private sector foreign currency demand softened the seasonal decline in external reserves.

For the year 2004, economic growth strengthened in comparison to 2003, led by further expansion in tourism output, accelerated credit support for private sector consumption and housing investments and, accompanied during the last three months of the year by added construction stimulus from re-insurance inflows and the rebuilding efforts following Hurricanes Frances and Jeanne. As regard tourism, official estimates indicate that growth in visitor arrivals firmed to 8.9% during 2004, from 4.3% in 2003, with sea traffic improved by 12.3% compared to 5.4% during the previous year and air arrivals gains almost steadied at 1.5% compared to 1.9% in 2003. Among the major destinations, New Providence experienced improvements in both stopover and cruise business and the Family Islands registered a strong uptrend, concentrated in stopover activity. In Grand Bahama however, despite a robust acceleration in sea arrivals growth (38.5%), the 10.5% reduction in air traffic resulted in a projected decrease in total visitor expenditures on the island.

As to the economic outlook, conditions in the United States and other major economies remain supportive of tourism expenditure growth in 2005; albeit, with Grand Bahama's participation not expected to be at full force before the middle of the year. Expectations are that foreign investment inflows will be significantly elevated in 2005, adding to construction sector stimulus and, alongside tourism, supporting robust growth in banking sector deposits. While the revenue fallout and infrastructure repair needs generated by the hurricanes stalled the consolidating trend in the Government's deficit during the first four months of FY2004/05, the healthy prospects for the economy increase the scope for improvement during 2005.