Economic growth expected for The Bahamas however uncertainties remain

May 3, 2022

Though the Commonwealth of The Bahamas economy is expected to fully recover by 2023, ahead of initial projections, Central Bank Governor John Rolle stated that the current economic environment must be characterized by caution. Highlighting that higher oil prices and inflation threaten the more than $3 billion in external reserves.

During the Central Bank’s quarterly economic briefing to the media, Rolle stated that while the Bahamas’ economy is growing in the short term, potential drawbacks remain. “Alongside tourism, the economy is experiencing sustained contributions from foreign investments, providing healthy stimulus to construction. It is expected that the economy could be fully recovered over the course of next year – that is 2023 – possibly slightly ahead of the projections made at the end of 2021,” he said during the virtual briefing yesterday.

“That said, there continues to be a distinction between recovery from the low point of the pandemic – for which the falloff in the economy was quite drastic – and the still very mild annual growth projections that lie beyond the recovery phase.”

The decision by the US Federal Reserve to battle unprecedented inflation by raising interest rates to level out spending has been met with estimates from US analysts of an approaching constriction of the country’s economy, perhaps leading to a recession. This, according to Rolle, might be a lynchpin in slowing the upward momentum The Bahamas has garnered in recent months since the economy’s complete reopening.

“That is why we continually emphasize that there has to be a distinction made between getting back to pre-pandemic – for which the headwinds are less for The Bahamas because there is still pent-up demand for travel – and we are in many cases still growing back into the capacity that existed. We have a tourism sector where even some of the room inventory in various parts of New Providence and the Family Islands are still not back in use,” he said.

“So, from that point of view, just getting back to where we were in 2019 will seem as though we’re growing, but we are just bouncing back. The challenges and a lot of the potential downside risks that we’re seeing, those will be dragging against us as this recovery is taking place. Beyond the recovery phase, those can begin to overpower the forward momentum and from that point of view we have to be thinking about how we re-energize the economy to move ahead beyond 2023.”

The Bahamas’ first-quarter performance has been robust, according to the Central Bank governor, with tourism restoring almost 75% of the visitor arrival numbers observed in 2020 prior to the COVID-19 pandemic, as well as approximately two-thirds of 2019’s record arrival levels. While forward-looking signs indicate to ongoing success due to The Bahamas’ favourable gains from pent-up travel demand in important source economies, Rolle cautioned that the United States’ 1.4 percent economic decline in the first quarter implies issues exist.

“The experience of the US economy in the first quarter helps to underscore why we must be very cautious in how we react to the upturn in our economy. It still means that there is some element from a Central Banking perspective where caution still has to be a part of the mix from a policy point of view,” he said.

“The inflation impact matters because as goods become more expensive from a central banking point of view, it means more foreign exchange has to be used up to sustain the levels of essential imports that the economy needs to keep up, such as energy, oil particularly. So from that point of view, we do know that the oil component of inflation is going to take a bigger chunk out of the foreign exchange and help to push up the foreign exchange also.”

Tourist arrivals increased to 723,522 in January and February, up from 53,129 in the same period in 2021, according to the March Monthly Economic and Financial Developments report. External reserves increased by $523 million to slightly over $3 billion at the start of May, reversing a $129.9 million decline in the previous year.

Disclaimer:

Analyst Certification The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.

 

 

2022-05-03T13:35:58-05:00