McTaggart: Cayman economy expected to contract by 11.4 percent
Roy McTaggart, Minister for Finance and Economic Development
“It is really disheartening for me to say that or share that but that is the stark reality of what we are likely to face going forward,” said Roy McTaggart, Minister for Finance and Economic Development, of the grim economic picture that was painted of the post-COVID economy of the Cayman Islands at this afternoon's coronavirus press briefing in Cayman.
According to the minister, at the end of 2019, Cayman’s economy was thriving and growing at a rate of 3 per cent per annum. This growth was being led by construction, which was experiencing growth at about 6 per cent and hotels and restaurants, which were growing at 5.3 per cent. Inflation was at 5.7 per cent and unemployment was at 3.5 per cent at the time. This state of economic affairs continued until February.
With the impact of COVID-19, in the best case scenario looked at by the Economics and Statistics Office (ESO), the economy will reopen by the beginning of July 2020. This scenario also assumes a small influx of visitors beginning in October 2020.
Under these scenarios, GDP is projected to contract by 11.4% with the unemployment rate rising to 11.6%. The number of displaced jobs is estimated at 8,859 (or an unemployment rate of 18.7%), of which 2,772 would be Caymanian jobs. The scenarios are conditioned on the gradual return of visitors (less than 20% of normal visitor levels that usually prevails at the high tourist season) beginning in the last quarter of 2020.
If international developments prevent the arrival of visitors to Caymanian shores for the rest of this year, then based on these economic projections, Cayman would see a further uptick in the unemployment rate and a further contraction in the ability of residents to earn money. Under this scenario with a July 2020 lifting of most domestic restrictions, the income earning capacity (GDP) of the Islands is projected to contract by 12.2% with the unemployment rate rising to 12.3%.
As a result of the projected decline, the Caymanian unemployment rate is projected to jump to 19.7% (or 2,981 persons), and a total of 9,582 jobs (or 12.3%) would be displaced.
Despite a sharp uptick in food and medical/sanitary goods inflation for the first quarter of 2020, a reduction in non-food demand coupled with a decline in international commodity prices – including oil prices - is expected to relieve inflation pressures for the year. The global demand is expected to remain subdued for non-food items over the short term, especially in our source markets. In addition, locally, downward pressure on housing rental is expected as displaced ex-pats exit our shores, lower transport costs due to lower cost of fuel, and with the halt in visitor arrivals pushing domestic accommodation prices downwards. Consequently, these factors combined are projected to exert downward pressure on the average inflation rate to 0.4% in 2020, compared to 5.7% for 2019.
Cayman is expected to experience a significantly higher rate of contraction than the rest of the region and much of the world. According to the IMF, the global lockdown will result in a global economic contraction of 3 per cent and advanced economies are expected to contract by 6.1 per cent, with the US forecasted decline at 5.9 per cent. The Latin American and Caribbean region is expected to contract by 5.2 per cent, according to the IMF. Aruba is expected to register the largest decline in the region, of over 13 per cent. Antigua and Barbuda is expected to experience a contraction of 10 per cent; Barbados, 7.6 per cent; the Bahamas, 8.3 per cent; Jamaica: 5.6 per cent and St. Lucia: 8.5 per cent.