Monthly Economic and Financial Developments, July 2018

Published: Monday September 3rd, 2018

Domestic Economic Developments

Overview

The domestic economy maintained its mildly positive growth trajectory in July. Gains in the tourism sector were underpinned by improvements in the major source markets, increased high-end room capacity, and an expansion in airlift. In addition, foreign investment projects continued to support activity in the construction sector. However, tourism-dominated employment gains trailed the labour force expansion, with the average unemployment rate consequently increasing in the year-over-year comparisons, through May, 2018. Meanwhile, domestic fuel prices remained elevated for the year, given only incremental abatement in imported fuel costs for the month of July. Liquidity in the banking sector declined over the review month, with the reduction in the deposit base outpacing the decline in credit. Similarly, external reserves decreased during July, reflecting the seasonal uptick in foreign currency demand.

Real Sector

Tourism

Preliminary indicators for the tourism sector point to a sustained improvement in the industry’s performance during the review period, over the prior year. The key driving factors included the addition of more high-end room inventory—as the multi-billion dollar Baha Mar resort completed its phased opening in May—along with an increase in airlift from several markets in North America, and an aggressive marketing campaign by the Government.

Against this backdrop, official data from the Ministry of Tourism showed a 3.1% increase in total visitors during the first five months of the year, a reversal from a 2.5% decline in the prior period. Gains in overall arrivals were anchored by the high value-added air segment, which strengthened by 15.0%, in contrast to a 6.0% contraction in 2017. In addition, the falloff in sea passengers eased to 0.2%, from 1.4% in the preceding year.

An analysis by major ports of entry, showed that air arrivals to New Providence advanced by 17.6%, a turnaround from 2017’s 7.0% contraction; however, an 11.6% decrease in the larger sea segment, led to a 4.0% fall in total visitors. Further, arrivals to Grand Bahama firmed by 5.0%, vis-à-vis a sharp 22.5% decline a year earlier, due to a 6.2% rise in sea passengers, which outpaced the 4.4% falloff in air traffic. Moreover, the Family Island market expanded by 16.5%, a reversal from an 11.8% contraction in 2017, reflecting gains in both air and sea traffic by 11.8% and 17.5%, respectively.

The positive trend in air arrivals was sustained over the first seven months of the year, as data from the Nassau Airport Development Company (NAD) showed that the growth in visitor departures—net of domestic passengers—strengthened to 8.8% in July, from 0.6% a year earlier. Underpinning this improvement, the dominant U.S. segment advanced by 8.5%, outpacing the 1.4% increase recorded in 2017, while non-U.S. international departures rose by 11.9%, in contrast to a 5.7% decline in the previous period. An analysis of longer-term trends showed similar results, with visitor departures advancing by 11.8% over the seven-month period, vis-à-vis the prior year’s 1.7% falloff. This outturn was due to gains in both the U.S. and non-U.S. international segments by 11.0% and 16.6%, following respective contractions of 1.9% and 0.9%, in 2017.

Supported by the increase in stopover visitor arrivals, data compiled by the Bahamas Hotel and Tourism Association, revealed that major hotel properties experienced total room revenue gains of 32.0% during the first half of 2018, compared to a decline of 7.0% a year earlier. Underlying this development, the average daily room rate (ADR) rose by 4.3% to $256.65, while total room night sales increased by 26.0%. With the room capacity boost however, the average hotel occupancy rate was 1.4 percentage points lower at 65.9%.

Improvements were also noted at off-resort tourist properties, particularly short-term private accommodations. Provisional data from AirDNA showed a 35.1% increase in total bookings across the Airbnb platform for properties listed in the country, relative to the same period of 2017. This development reflected broad-based gains across the major rental centres, with bookings in the Abacos, Exumas, Grand Bahama and New Providence, firming between 23.0% and 43.0%, as more properties registered with the service. An analysis for the two major categories, showed that booked nights for both the entire residence and hotel comparable listings, rose by 36.5% and 39.8%, while the comparative average daily rates increased by 4.0% and 3.0% to $349.75 and $137.10, respectively.

Employment

Data from the Department of Statistics’ Labor Force Survey for May 2018, showed an increase in employed persons, by 4.0% over May 2017 and by 2.2% relative to November, amid tourism-related job gains. While the unemployment rate fell by 10 basis points to 10.0% over the six-month period; it firmed by the same magnitude relative to the prior year’s 9.9%, due to the offsetting effect of the increase in the labor force. Unemployment for young persons (15-24 years) remained at 24.1%, in line with the prior six-months and 2.0 percentage points higher than May 2017’s rate.

In terms of economic zones, the jobless rate in New Providence fell by 40 basis points, year-on-year, and by 60 basis points over November 2017 to 10.0%, supported by the sustained on-boarding of staff for the Baha Mar development. In Grand Bahama, the jobless rate remained at 12.4%, relative to the same period a year earlier, but stood 30 basis points higher in comparison to the prior six months. Meanwhile, the unemployment rate increased in Abaco over both the six and twelve-month periods, by 2.1 and 2.9 percentage points, respectively, to 10.7%.

Prices

Data on the impact of the VAT increase on inflation is not yet available; however, indications are that the recent softening in global fuel prices contributed to the decline in domestic energy costs during the period. The Bahamas Power and Light’s (BPL) fuel surcharge fell marginally by 0.4% to 17.39 cents/KWH in July. Still, in comparison to the prior year, prices were 35.9% higher.

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