November 12, 2007

REGIONAL ECONOMIC SUMMARY

The overall macroeconomic performance in the Regional Economy continues to be favourable with economic growth averaging at 5.5% in 2006, and inflation on average at 4.5% for the same period. In Jamaica, economic growth in the second quarter of 2007 continued in the range of 1.5% - 2.5%. This represented a moderation in growth relative to the June 2006 quarter, and is the consequence of the slower expansion in tourism and mining. However, the performance in the second quarter was stimulated by investment spending. Headline inflation for the second quarter was 1.9%, bringing the inflation for the calendar year to 2.9%. The September's general election results gave the Jamaica Labour Party (JLP) a narrow edge of victory, paving the way for Bruce Golding's JLP to form its first government since 1989. While the results indicate a readiness for political change in Jamaica, no drastic shift is expected in the country’s policy agenda. The JLP has outlined its plans for the next five years and will focus on four key areas: education, health, employment and domestic security.

In Grenada, the economy is gradually recovering from the ravages of two major hurricanes in 2005, with strong growth projected in the tourism sector. On August 1 2007, Standard and Poor’s raised its long-term sovereign credit rating to B- from CCC, in recognition of the government’s efforts to contain its debt. Moreover, inflation has fallen markedly, from a high of 5.8 percent (on a year-on-year basis) in late 2005 to only 2.2 percent by April 2007.

St. Kitts & Nevis recorded increased economic activity for the first quarter of 2007 attributable to growth in agriculture, construction, the distributive trade, banking, wholesale, retail and government services. Public sector and Central Government debt are both decreasing as the government has expressed pleasure in the positive direction of the growth of the National Economy and the improvement in the government’s fiscal provision. The settlement of a maritime border dispute between Guyana and Suriname will benefit both countries' development. The Basin is expected to be rich in oil and gas reserves, particularly in the newly marked Guyanese territory, and should help encourage considerable inward investment. Long-term success for Guyana however, will still remain heavily contingent on stabilising the current political and economic environment. Given the worldwide scramble for energy resources amid consistently high demand (and prices), the end of the dispute should clear the way for rapid investment in Guyana. If oil reserves are found, we would expect further investment into the sector, especially from refining and distribution companies.

The economy of Trinidad and Tobago is expected to grow 5.5% in 2007 after 12% growth in 2006, on the strength of the energy sector. Construction is likely to continue leading the non-energy sector with the number of projects that are continuing around the country. The expansion in the non-energy sector has led to the creation of new job opportunities, thereby causing unemployment to decline to historically low levels of between 5-6%.

The Central Statistical Office indicators measured headline inflation at 7.9% y-o-y for August 2007, easing from 8% in July 2007. This inflation rate remains significantly outside of the Central Bank’s target of 4 – 5%. Core inflation fell marginally to 4.5% from 4.7% in the same period. The Central Bank continues to hold the Repo rate at 8.0% since the last change in September 2006.

In late August the 2007-2008 national budget was presented, with expenditure over the next fiscal period estimated at a record $42 billion. The key areas of focus were accelerating the diversification of the economy, poverty alleviation, development of the agricultural sector, enhanced delivery of health services and security.

While inflation continues its downward trend, food price inflation continues to pose a problem as the price of grains for flour and bread rise. The proposal to address this trend involves the dual strategy of on-going support for small farmers, as well as the establishment of large commercial farms.