Recession avoided – for now
The Cayman Islands economy avoided slipping into recession last year, but is likely to do so this year, the Economic and Statistics Office says.
In its Annual Economic Report, released Monday, the agency said the Cayman Islands economy grew by 1.1 per cent throughout 2008, down from 2.2 per cent in 2007, as the global financial crisis took hold.
The 1.1 per cent growth rate was marginally better than most other major Western economies throughout 2008, but below the average Caribbean growth rate of 3 per cent.
The statistics office said the Cayman Islands economy was propped up in 2008 by government projects designed to boost the economy and by a stable banking sector.
Proving the old adage that when North America sneezes, Cayman catches a cold, the statistics office said the local economy will shrink in 2009 ‘as a result of the contagion effect from recessionary conditions in the global economy.’
While the economic downturn will be mitigated by higher government capital spending, the statistics office said the global crisis will hit the financial services sector and tourism the hardest.
‘The US continues to be the main source of demand for financial services and accounts for approximately 80 per cent of stay over tourism,’ the report noted.
Unemployment increased in Cayman from 3.8 per cent to 4.0 per cent in 2008 and the situation is expected to get worse this year as the economy contracts.
According to the report, 1,549 people in the Cayman Islands were officially listed as out of work last year. Of them, 1,169 were Caymanians and 380 were non-Caymanians, mostly permanent residents and non-Caymanian spouses of citizens.
The cooling economy is expected to put a brake on price increases, with inflation expected to drop from 4.1 per cent to 2.4 per cent in 2009 before rising to 3 per cent in 2010.
The 1.1 per cent economic growth rate throughout 2008 was on par with the US, but slightly better than growth rates of 0.9 per cent in Europe, 0.5 per cent in the UK; 0.5 per cent in Canada and -0.6 per cent in Japan.
The Cayman economy lagged behind the Caribbean average growth rate of 3 per cent. Antigua and Barbuda’s economy was the strongest in the region, growing by 4.2 per cent; Trinidad and Tobago and St Kitts and Nevis also performed well, growing by 3.4 and 3 per cent respectively. The Jamaican and Bahamian economies tanked the worst, contracting by 1.2 and 1.3 per cent respectively.
The report said a majority of Cayman’s workforce is non-Caymanian (55 per cent), with Caymanians accounting for 45 per cent of the working total.
The report put the three islands’ total population at 57,009, 39,000 of which are in the labour force. Work permits grew by 0.7 per cent over the year
Inflation jumped from 2.9 to 4.1 per cent in 2008, driven by increasing prices for household equipment (7.5 per cent), food (5.6 per cent), housing (4.2 per cent), education and medical services (4.2 per cent) and transport and communication (4.1 per cent). However, inflationary pressures dropped in the last quarter of the year after a big reduction in oil costs.