Monthly Economic and Financial Development, May 2019

Published: Saturday June 29th, 2019

Domestic Economic Developments

Overview

Indications are that the domestic economy maintained its modest pace of expansion over the review period, as increased visitor traffic for the Easter holiday period, sustained the growth in tourism, while ongoing medium and small-scale foreign investment projects supported activity in the construction sector. Inflation rose modestly during the twelve months to March, reflecting the pass-through effects of the increase in the value added tax (VAT) rate in prior periods. In monetary developments, bank liquidity declined over the review period, amid an increase in credit-mainly to the Government-while deposits firmed mildly.

Real Sector

Tourism

Tourism output continued to improve over the review period, led by gains in the high value-added stopover visitor segment. According to the latest data from the Ministry of Tourism, total arrivals rose by 11.9% in April, outpacing the 0.9% increase recorded in the corresponding month last year, as hotels benefitted from the Easter holiday traffic. Specifically, the growth in air arrivals quickened to 18.8% from 4.3%, and sea passengers advanced by 9.6%, a reversal from a slight 0.1% reduction in 2018.

Underpinning this improvement, visitors to New Providence recovered by 23.0%, a turnaround from 2018's 10.9% contraction, amid gains in both air and sea tourists. In contrast, gains in Family Island visitors slowed to 6.9%, from 31.3% a year earlier, as changes in major cruise lines' port itineraries, resulted in a deceleration in sea arrivals' growth, although the higher value-added air component recorded an upturn over the prior period's outcome. In contrast, conditions in Grand Bahama remained relatively weak, as total arrivals contracted further by 26.7%, as the decline in calls from major cruise lines, outweighed the air segment's marginal gain.

On a year to date basis, total arrivals firmed by 12.2% to a record level of 2.6 million, outpacing the 2.3% increase during the same period last year, amid growth in air and sea tourists of 17.7% and 10.5%, respectively. A breakdown by island, showed that total tourists to New Providence rose broadly, by 26.0%, while Family Island traffic increased by a tapered 1.2% pace, as the onshore visitor boost was muted by weaker sea volume. Further, visitors to Grand Bahama contracted by 21.2%, owing to a falloff in the cruise segment, which overshadowed the incremental improvement in air arrivals.

Buoyed by gains in the high value-added stopover segment of the market, total hotel room revenue firmed during the month of April. The latest data from The Bahamas Hotel & Tourism Association (BHTA) and the Ministry of Tourism, showed a 27.9% improvement in room revenue during April, as the average occupancy rate firmed by 5.9 percentage points to 78.5%, while the average daily room rate (ADR), increased by 14.8% to $304.68. Similarly, on a year-to-date basis, total room revenue expanded by 34.0%, with the average occupancy rate advancing by 11.9 percentage points to 77.9%. In addition, the ADR firmed by 10.4% to approximately $300.00.

For May, data from the Nassau Airport Development Company Ltd. (NAD), tracing stopover activity, showed that total departures-net of domestic traffic-grew by 15.8%, following an increase of a similar magnitude in 2018. Specifically, the growth in non-U.S. departures accelerated to 15.1% from 11.8%, while the dominant U.S. component advanced by 15.9% for the second consecutive year. Further, over the first five months of 2019, aggregate departures rose by 19.9%, extending the 12.7% expansion recorded in the prior period, as the growth rate for U.S. traffic nearly doubled to 21.6%; although gains in the non-U.S. component tempered to an albeit healthy 11.2%.

Similar strengthening trends were evident in the short-term rental market. Data from AirDNA revealed a 25.2% increase in total room nights sold during May, with bookings for hotel comparable and entire place listings firming by 30.8% and 24.6%, respectively. An analysis of the major markets, showed that Exuma recorded the strongest growth of 34.7%, followed by New Providence (19.3%) and Abaco (21.5%); however, bookings for Grand Bahama fell by 5.2%, on account of a decrease in the entire place category. In terms of pricing, the ADR for hotel comparable listings contracted by 23.3% to $150.43, due to broad-based declines across all major destinations. Similarly, rates for entire place listings narrowed by 6.4% to $399.28, with declines in all of the markets-with the exception of Exuma.

Prices

During the twelve months to March-domestic inflation as measured by the All Bahamas Retail Price Index-firmed by 1.7 percentage points to 2.9%, reflecting the pass-through effects of the increase in the VAT rate and the rise in global oil prices. In particular, accretions to average costs accelerated for transport, alcoholic beverages, tobacco & narcotics, food & non-alcoholic beverages, healthcare, and restaurants & hotels. Moreover, average prices rose for furnishing, household equipment & routine household maintenance, miscellaneous goods & services and clothing & footwear, after contracting in the prior year. In contrast, inflation slowed for housing, water, gas, electricity & other fuels, and recreation & culture; while, communication and education costs decreased during the period, when compared to the prior year.

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