December 08, 2006

REGIONAL ECONOMIC SUMMARY

The region is expected to maintain growth projections of 5.3% for the year. Regional tourism is expected to remain strong for the rest of the year as the hurricane season has thus far remained quiet. Construction is still taking place for the Cricket World Cup 2007 (CWC) for stadiums and infrastructure. Legislation for the ICC CWC Bill – also known as the Sunset Bill – has been passed by all countries that are involved. This Bill shall regulate the passage of travel for tourists that are in the Caribbean among other issues for the CWC.

The economy of Jamaica expanded by an estimated 2.7% year-on-year (y-o-y) in the third quarter, up from 2.4% y-o-y in the second quarter. Expansion was led by Agriculture with an increase of 9.6% y-o-y with significant increases in traditional export crop such as coffee, banana and cocoa production. Mining and quarrying also experienced marginal growth based on the increase in crude bauxite production despite a fall in alumina production as a result of equipment failure at two refineries. Manufacturing dropped by 2.6% as the cigarette company of Jamaica moved operations to Trinidad. Tourist arrivals are expected to remain strong in the last quarter. Jamaica remains on course for moderate economic growth of 2.7% for 2006.

The GDP of Guyana is expected to increase by 2.5% in 2006 following a recession in 2005. The nominal fiscal surplus for the first quarter in 2006 was the second largest quarterly surplus since the second quarter of 2004 that can assist in reducing the fiscal deficit. The fiscal deficit is currently forecast at 10.5% of GDP compared to 12.4% in 2005. Guyana continues to benefit from multilateral debt relief from institutions such as the IMF, as well as grants from various aid agencies such as the Inter-American Development Bank.

Grenada’s GDP growth is forecast at 4.5% for 2006. The Eastern Caribbean Central Bank (ECCB) reported overall deceleration of economic activity in the first quarter of 2006. This deceleration was due to a considerable downturn in the construction sector y-o-y despite solid growth from the manufacturing and agricultural sectors. The IMF also revised GDP growth for 2005 upwards to 5.2% on the strength of the rebuilding efforts after Hurricane Ivan in 2004. Grenada has also resumed diplomatic relations with China in January 2006 for technical assistance in agricultural production and livestock cultivation which can lead to a positive impact on economic activity.

Trinidad and Tobago remains well on course to record 12% real GDP growth for 2006 with the continued strength in the performance of the energy sector. However, inflation has increased to 9.6% in September 2006 with core inflation at 3.9% and food prices going up by 27.4%. The ‘repo’ rate was increased to 8.0% in September 2006 to attempt to reduce spending levels. Access to consumer credit facilities have continued to decrease since the start of the year, which is an indication that consumer spending is further slowing down.

The Central Bank of Trinidad and Tobago is shifting its policy to focus on more aggressive methods of liquidity absorption. In order to improve the transmission of changes in the new bond issue as per the policy interest rate the Bank is increasing the issue of government securities to finance the non-energy deficit. It seeks to do this by expanding the list of primary dealers in order to widen participation in the open market activity and thus provide for better market determination of interest rates/

In October, Standard & Poor’s (S&P) confirmed Trinidad’s foreign currency rating at A- with a stable outlook. This investment-grade is based on strong current account and fiscal policy on the continued strength of the energy sector. However, the S&P cited concern that the economy is too reliant on the energy sector and would like to see further economic diversification and a reduction in the non-energy fiscal deficit.

A recent announcement was made that the national airline of 66 years, BWIA will be closed for business on December 31, 2006. It will be replaced by a new company, Caribbean Airlines. The closure was based on continued financial problems with sustained losses over the years. The government, which was a majority shareholder of the outgoing airline, often had to inject additional funds into the airline to compensate for the financial shortcomings.

The national budget for fiscal year 2006-07 was recently presented where the main allocations were going toward the energy sector and education. There are also intentions to improve the transportation issues in the nation. However, there is dissatisfaction with the lack of clarity in the measures to be implemented to reduce inflation and how to improve the crime situation.