Monthly Economic and Financial Developments, August 2009

Published: Monday October 5th, 2009

Despite a short-term boost to the tourism sector, provided by the hosting of an international event during the review month, indications are that the effects of the worldwide economic recession continued to subdue domestic economic activity. Price developments were comparatively favourable, as the easing in inflationary pressure witnessed since the beginning of 2009, was sustained in August. Weak private sector demand conditions continued to support buoyancy in overall bank liquidity and, although the combination of lower foreign currency inflows and the seasonal, but below trend foreign currency demand exerted downward pressure on external reserves, the stock was bolstered by the International Monetary Fund’s recent general Special Drawing Right (SDR) allocation under its initiative to enhance global liquidity.

Preliminary estimates suggest that tourism output contracted over the first eight months of the year, owing to persistent weakness in the higher yielding stopover segment of the market. In contrast, sea arrivals were buoyed by both the return and rerouting of a number of cruise ships following health concerns in other destinations. Preliminary hotel performance indicators were adversely impacted by lower occupancy levels which, combined with increased discounts and other incentives, resulted in a double digit contraction in room revenues.

The continuing effect of comparatively lower energy costs tempered consumer price inflation to 3.5% in the twelve months to August from 3.6% a year earlier. Higher gains persisted for food & beverages (7.7%), other goods & services (6.0%), furniture & household operations (4.4%) and education (3.5%); while average cost elevations of less than 3.0% were registered for the remaining categories. In terms of electricity prices, the average fuel surcharge for August rose by 3.2% to 9.92 cents per kilowatt hour (KWh), in comparison to the previous month; however, it stood 60.0% lower than the prior year’s rate. Fuel price movements were mixed, as the cost of diesel rose by 1.27% to $3.20 per gallon while gasoline prices fell by 3.6% to $4.01 per gallon. Since August 2008, however, average costs for both gasoline and diesel have receded by 29.4% and 47.7%, respectively.

Early estimates on Government’s budgetary operations for the first month of FY2009/10 revealed a moderate narrowing in the deficit, by $8.9 million to $20.6 million. Total spending settled 7.3% ($9.5 million) lower at $120.1 million, attributed mainly to comparatively smaller outlays on infrastructure projects and the marginal $0.6 million fall to $99.5 million in revenue was largely explained by a two-thirds decrease in the property component of stamp tax receipts.

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