March 26, 2007

REGIONAL ECONOMIC SUMMARY - February 2007

The Cricket World Cup 2007 (CWC) is here as the Caribbean hosts the rest of the world in the premier cricket event. The tournament takes place from March 13th to April 28th, with warm up matches taking place the week before. An influx of tourists is expected for the event despite some issues with the single CARICOM visa, which treats the countries that are involved in hosting the CWC as a Single Domestic Space (SDS) for travel among the islands. The CWC is expected to bring a surge of economic activity into the region as well as encourage interest for new visitors as a potential tourist destination in the future.

The economy of Jamaica grew 2.7% in the fourth quarter of 2006 with strong performances in Transport, Storage & Communication, Mining & Quarrying, Agriculture, Forestry & Fishing and Construction & Installation. It is estimated that Manufacturing was the only sector to have declined. Inflation for the period was 0.3% down from 2.4% in the third quarter and 0.9% from the same period of the prior year. The inflation rate for 2006 decreased to 5.8% from 12.9% of the previous year due to the reversal in the price of international crude oil and significant agricultural supply. The outlook for the following quarter remains positive based on expectations that GDP growth will remain strong along with a low inflation rate.

The Eastern Caribbean Currency Union (ECCU) estimates economic growth at approximately 7% in 2006 for the combined economies involved in the Union. The strong economic performance is fuelled by a weaker US dollar, favourable credit market conditions and considerable expansion in Construction, Tourism and Manufacturing sectors. The Currency Union hopes the economies can take advantage of the exposure of the CWC in a number of ways including a potential expansion in Tourism, which has become the main foreign exchange earner with the loss of preferences for agricultural exports.

The economy of Guyana grew by 4.7% in 2006 according to the local Finance Minister. The growth was led by increases in the Engineering and Construction sector, which reflected the preparations for the CWC and sugar production. However, Mining and Quarrying fell with the bauxite industry suffering several setbacks. Inflation was 4.2%, about half of the previous year and lower than the target of 6.3%. Consumer credit also increased which can be a sign of confidence in the economy. The economy is projected to grow 4.9% for 2007.

Forecasts for GDP growth for 2006 for Trinidad and Tobago remain at 12% based on the continued strength of the energy sector. Inflation has decreased to 8.6% year-on-year (y-o-y) in January 2007 from 9.1% in December 2006, with core inflation at 4.4% and food price inflation slowing to 20.9% y-o-y to January 2007. The ‘repo’ rate has been maintained at 8.0% since September 2006 as the Central Bank implemented more aggressive open market operations to increase liquidity absorption. Access to consumer credit facilities has continued to decrease since the start of the year, an indication that consumer spending is further slowing down. However, there are concerns that it is still too high.

The Central Bank has issued bonds in November and February in the amounts of TT$700 million and TT$300 million respectively as a way to increase liquidity absorption. The proceeds of these issues are expected to be sterilized by the Bank. The Central Bank is also increasing sales of foreign exchange to complement the issue of the bonds.

The Government is continuing with initiatives to increase the domestic supply of food with higher imports, which can lead to price moderation of foodstuff. There is also an intensified effort to expand the agricultural distribution network to create a more direct link between farmers and consumers and allow for greater price awareness and comparison shopping among consumers. Additional measures are being taken to increase agricultural output which will take some time before they materialize.

The continued slowdown of inflation to an acceptable level remains a priority for both the Central Bank and the Government. Many are pleased with the current progress as Central Bank measures are starting to take effect and the Government is showing increased interest in the issue. The Government is also placing a great emphasis on hosting the CWC with last minute issues in infrastructure and security being addressed to ensure the local portion of the CWC is a success. Like the rest of the Caribbean, Trinidad and Tobago hope to benefit greatly both during and following the CWC.