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Monthly Economic and Financial Developments October 2008

Published: Tuesday December 2nd, 2008

Domestic economic conditions continued to weaken during the month of October, as the negative effects of the turmoil in the global financial sector became more entrenched in real sector activity. Anecdotal evidence suggest a pronounced seasonal falloff in local tourism, which foreshadowed the October and November job losses, while the pace of lending for local mortgages—which help support construction—continued to moderate. Although the cost of international crude oil trended downwards during the review month, the pass through effects of earlier increases still lingered, resulting in the domestic inflation rate firming for the 12-months to October. On the monetary front, both bank liquidity and external reserves contracted during the month, due partly to increased net foreign currency outflows and a larger net drawdown in Bahamian dollar deposits.

Reflecting heightened transmission of the external sector weakness to the local economy, total tourist arrivals to The Bahamas were down by 9.0% in the 3 months to August, following a 5% reduction in the same period a year earlier, with the 15.0% falloff in sea arrivals outweighing a 2.1% increase in air tourists. The softening was less pronounced in the year-to-date trends, as visitor traffic fell by 3.8% to 3.2 million during the first eight months of the year, although tempered from the 5.5% downturn registered in the same period last year. Air arrivals were higher by 1.7%, but were overshadowed by a 6.5% reduction in sea traffic. By port of entry, New Providence featured a 7.1% decline, as the improvement in the air segment was outstripped by a decrease in sea arrivals. Similarly, arrivals to Grand Bahama fell by 11.4%, explained by continued weakness in both air and sea travellers. However, gains in sea visitors supported an overall 7.3% hike in the number of tourists to the Family Islands.

During the first quarter of Fiscal Year 2008/09, growth in Government expenditure outpaced revenue collections, resulting in an 18.2% expansion in the overall deficit to $60.1 million. Total revenue improved by 7.1% to $314.6 million, as tax receipts rose by 8.2%, offsetting a 4.5% contraction in non-tax collections. However, Government expenditures grew by 8.8% to $374.7 million, fuelled by a 9.1% increase in current outlays, which exceeded the 6.7% decline in capital expenditure.

With regard to prices, domestic inflation for the twelve months ending October firmed to 4.2% from 2.4% in the corresponding period last year, reflecting broad based increases across most categories. Accelerated firming was registered for furniture & household operations (6.9%), ‘other’ goods & services (6.1%), food & beverages (5.8%), medical care & health (5.0%), transport & communication (3.6%), housing (3.0%), education (2.6%) and clothing & footwear (1.6%). In contrast, the average cost for recreation, entertainment & services moderated (2.8%). Amid the downward trend in global fuel prices, local gasoline costs decreased by 3.9% to $5.14 per gallon and diesel fell by 8.1% to $4.86 per gallon; however, compared to the same month last year, prices were still higher by 0.5% and 6.2%, respectively.

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