Monthly Economic and Financial Developments, September 2008

Published: Thursday November 6th, 2008

Global economic and financial conditions deteriorated rapidly during September, as the US financial crisis enveloped both developed and emerging markets. These developments have adversely affected the domestic economic outlook, with further softening in output expected beyond the continued weakness noted in the review month. Despite some easing in global oil prices, inflationary pressures persisted, owing to the pass-through effects of previous oil price increases on imported goods. Monetary developments featured a more moderate seasonal drawdown in external reserves and almost stable liquidity, as the gap between Bahamian dollar credit expansion and deposit gains narrowed in comparison to September 2007. Year-to-date economic trends continued to reflect the more favourable conditions from the first half of the year, albeit the negative impact of the global slowdown is more evident in both the tourism and the construction sectors.

During the first seven months of the year, preliminary data showed that total visitor arrivals fell modestly by 3.2% to 2.7 million, owing to a 5.9% decrease in sea visitors which outstripped the 2.2% advance in air traffic. Among the major markets, visitors to Grand Bahama and New Providence contracted by 14.5% and 6.5%, respectively, mainly due to sustained weakness in sea passengers. In contrast, tourists to the Family Islands rose by 9.7%, as continued improvement in the sea segment outstripped the decline in air travel.

Although preliminary estimates revealed a reduction in the FY2007/08 budget deficit, the economic slowdown resulted in an estimated 20.9% widening in the deficit for first two months of the 2008/09 to $28.0 million. Total outlays firmed by 6.9% to $244.6 million, due primarily to an 8.0% hike in current spending as capital expenditure declined by 11.8%. However, the pace of total revenue gains trailed at 5.3% to $216.7 million, with the 6.3% rise in tax receipts outweighing a 5.2% contraction in non-tax income. The outcome nevertheless benefitted from the revamping of the Government’s trade taxes regime, which included the amalgamation of customs duties and stamp taxes into unified duty rates and the reclassification of some duties as excise taxes.

Inflation accelerated during the twelve months to September, by 1.47 percentage points to 3.90%, vis-à-vis a 0.85 percentage point rise to 2.43% in the previous year. The most significant price increases occurred for furniture & household operations (6.99%), other goods & services (5.33%), food & beverages (5.20%) and medical & healthcare (4.94%). For the review month, the pass-through effects of a decline in global oil prices occasioned reductions in local gasoline and diesel costs, by 5.8% to $5.35 per gallon and 13.6% to $5.29 per gallon, respectively; however, these remained higher than the 2007 estimates by 22.7% and 49.4%, respectively.

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