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September 2004

Published: Friday October 29th, 2004

While indications are that tourism's momentum continued to support healthy growth in the economy during the first nine months of 2004, September's falloff in activity as a result of Hurricanes Frances and Jeanne was particularly marked, culminating in a projected decrease in visitor expenditures during the third quarter. In addition to the depressed conditions in Grand Bahama and Abaco, business activity was suspended throughout the archipelago in the immediate days surrounding the storms. Banking sector data on foreign currency transactions confirmed a reduction in tourism inflows, along with reduced domestic demand for foreign exchange. 

Based on the pace at which the northern economies are expected to recover over the next few months and the level of growth originally anticipated during the third and fourth quarters of 2004, estimates are that total output loss during September-December could approach $200 million. This is in addition to losses from damage to infrastructure and property, of which, in the private sector's case, re-insurance inflows are expected to finance a large portion of the repairs. The expenditures on repairs, expected to peak during the first half of 2005, should offset 2004's output losses, and with the expected intensification of foreign investment inflows and steadily rising mortgage lending, sustain increased construction activity and employment.

Having surpassed the initial hurdle of the hurricanes, money and credit trends remain on a sustainable course for the remainder of 2004, with expectations of a net increase in external reserves and continued buoyancy in bank liquidity.

Tourism is still on track to resume a healthy upturn in 2005, rejoined by the full participation of the northern economies. The US economy will continue to provide the main support for the sector, albeit moderated by the Federal Reserve's tightening of interest rates to fight inflation. Higher oil prices represent an additional constraint on US growth and on the cost of travel, through which channels are transmitted the most direct negative effects on The Bahamas' economy. Nevertheless, the record nominal oil prices overstate this danger since, in inflation-adjusted terms, real energy costs are still lower than two decades ago.

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