Monthly Economic and Financial Developments, December 2008

Published: Monday February 2nd, 2009

During December, domestic economic developments continued to be adversely affected by the slump in global economic activity. Additional layoffs in the hotel sector pointed to significantly reduced seasonal activity and weakness in the short-tem outlook for tourism. Meanwhile, support for private consumption and investment expenditures remained subdued, owing both to weak employment conditions and the accumulated slowdown in credit expansion. Buoyed by the pass-through effects of earlier commodity price increases on consumer goods and services, the average inflation rate firmed during 2008. On the monetary front, both liquidity and external reserves contracted during December, as the expansion in credit contrasted with a net withdrawal of deposits from banks. However, their levels were significantly improved in the annual comparisons, as the abatement in credit expansion paced ahead of the slowdown in deposit growth. The economic deterioration also contributed to further erosion in credit quality indicators in the banking sector.

Mainly impacted by the falloff in travel demand from the United States, tourist arrivals fell further by 6.1% over the first nine months of the year, in comparison to a more moderate 4.2% in 2007. Reflecting the heightened deterioration during the second half of the year, arrivals fell by 15.2% during the third quarter, in contrasts to a 1.7% advance during the September quarter of 2007. In particular, the respective 11.6% and 17.0% third quarter falloff in air and sea traffic culminated in reductions of 2.8% and 7.8% over first nine months of 2007. Port of entry data showed continued decline in visitors to New Providence, by 9.2%, incorporating a third quarter decrease of 16.7% and led by weakness in sea arrivals (15.3%). Although Grand Bahama arrivals improved by 3.1% in the third quarter, a year-to-date decrease of 9.3% was recorded, based on reductions in both air (13.5%) and sea (7.3%) visitors; while arrivals to the Family Islands rose on a year-to-date basis, by 2.3%, despite a third quarter deterioration of 20.9%, as increased sea visitors (4.6%) outweighed the contraction in air traffic (7.0%).

For 2008, the average annual inflation rate firmed to 4.5% from 2.5% in 2007. More escalated cost increases on imported commodities underpinned an advance for food & beverages of 6.7%; while higher fuel prices led to firming in housing costs (including electricity expenses) of 3.5% and in transportation & communications costs of 3.0%. Significant average price gains were also noted for “other” goods & services (7.5%), furniture & household operations (6.8%) and medical care & health (5.0%). As regard retail fuel prices, the cost of diesel rose in December, by $1.00 to $4.89 per gallon and gasoline, by $0.87 to $4.92 per gallon––both exceeding the respective estimates of $4.00 and $4.50 per gallon in December 2007.

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