June 18, 2007

REGIONAL ECONOMIC SUMMARY - June 2007

The Caribbean region is currently evaluating the effects of hosting the Cricket World Cup (CWC) that ran from mid-March to April of this year. Regional economies benefited from the increased construction and investment that took place last year. However, attendances for the event were considered low especially in the first stage due in part to restrictions that discouraged locals, including high ticket prices. The elimination of India and Pakistan in the first round turned away large traveling contingents of supporters for the remainder of the competition, causing a negative impact on match attendance and tourism.

Tourism was also negatively affected with the CARICOM visa which discouraged visitors who were usually exempt of this process or underwent simpler procedures to visit and whose primary interest was not the CWC. Despite mixed reviews of the CWC, the region can be praised for coming together to host the tournament. With the end of the CWC and the Single Domestic Space, tourism is likely to recover as the year progresses though there are warnings that there will be an increase in the number of hurricanes in the Caribbean this year.

Preliminary figures suggest that the economy of Jamaica has kept pace with the first three quarters of the fiscal year ending March 2007 (FY2006/07). For the fiscal year, economic growth is estimated between 2.4 – 2.6% with Construction & Installation, Agriculture, Forestry & Fishing leading the way. However, the performance of Mining & Quarrying is estimated to be weak along with a decline in Miscellaneous Services. Inflation for the period was 1.0% leading up to inflation for the FY2006/07 at 6.6%, the lowest rate since 2002/03 and a return to single digit inflation in four years. Tourist arrivals, which are a contributor to Miscellaneous Services, fell 2.5% in part due to the new US passport regulations, the temporary CARICOM visa and a mild winter season in the US.

The OECS is taking steps to become an economic union as countries line up their respective economic policies to achieve this goal in the future. This includes the introduction of a value added tax in some of the countries of the union, with each country setting its individual rate. Legislation harmonization is also being planned. These shall serve to enhance their stance in the region as a unit and should serve as a model to CARICOM in the future. There are also concerns about the increase in prices over airfare in the OECS and ferries are being explored as an option.

The economy of Antigua & Barbuda is estimated to have grown 7.1% for 2006. The government has imposed a new sales tax of 15% from January 29. A lower rate of 10.5% for the hotel and tourist industry is being implemented for a two year transitional period. Economic growth for 2007 is forecast at 5.5%.

According to the Central Bank, the economy of Trinidad and Tobago is expected to grow approximately 8.0% in 2007 after a 12% growth in 2006 on the continued 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 Central Statistical Office indicators measured headline inflation at 8.4% y-o-y for April 2007 up slightly from 8.0% y-o-y for March 2007. This inflation rate remains significantly outside of the Central Bank’s target of 4 – 5%. Core inflation also increased to 4.7% from 4.2% in the same period. While the figures have increased slightly, the Central Bank remains positive about inflation levels maintaining a downward trend. The Central Bank continues to maintain the Repo rate at 8.0% since the last change in September 2006.

The Central Bank states that net fiscal injections were 67% higher in the first seven months of this current fiscal year compared to the same period of the previous fiscal year contributing to the high rate of inflation. Bank credit expansion picked up in the first quarter of 2007 despite tighter liquidity and increases in interest rate. In response, liquidity measures by the government included the issue of securities in the amount of TT$674 million in February. The Central Bank will issue a special Treasury note to commercial banks to go along with open market operations and foreign exchange sales.

As inflation trends downward, the price of food has become a cause for concern as prices have continued to rise sharply in light of shortages in supply and increases in the price of imports. The government has stated that a proposed ferry service between Port-of-Spain and San Fernando is proceeding as scheduled and should be running during the course of the year. Along with improvements and expansion of major roadways, the government hopes that the proposed ferry service will alleviate the traffic situation. Crime remains a major concern to the population.