The Cayman Islands’ Economy First Quarter 2009: An Overview

First quarter indicators (see table) suggest that the Cayman Islands economy is entering a recessionary phase of its growth cycle. Real GDP is projected to contract by 1.4 per cent in calendar year 2009.
The Consumer Price Index stood at 152.2 in the first quarter, falling by 0.1 per cent compared to March 2008. This decline was mainly due to falling price indices for housing (-7.6 per cent), clothing (-5.6 per cent) and transport and communication (-0.7 per cent), which dragged down the increases for food (7.5 per cent), household equipment (12.5 per cent), education and medical (3.0 per cent), personal goods and services (2.9 per cent) and alcohol and tobacco (2.7 per cent). Food prices continued on an upward trajectory at 7.5 per cent.  Some of the highest movers were fruits and vegetables, oils and fats and meat while the average price of non-alcoholic drinks and fish fell.

Preliminary data for the first quarter of 2009 indicate that merchandise imports fell by 5.9 per cent from $215.9 million for the comparative period in the preceding year. This decline was anticipated in light of the projected economic downturn in the Cayman Islands. In absolute terms, merchandise imports fell by $12.7 million, partly due to reduction in transport and transport-related items, fuel and petroleum-related products, tobacco and alcohol, and steel and metal products.

Work permits in effect issued by the Immigration Department contracted by 2.8 per cent from the 26,451 recorded in March 2008. Low demand for goods and services resulted in the majority of employers reducing or slowing their demand for foreign workers across all skill classes and industries, except for the professional class.

Domestic lending to the private sector comprises credit to businesses and households. Loans to household generally followed an upward trend, while business loans rebounded following a trough in the third quarter of 2008.

The loans allocated to households, accounting for 63.7 per cent of total private sector credit, increased by 27.7 per cent (or $348.4 million) in March 2009 compared to a year ago. Domestic property loans dominated household loans expanding by $85.7 million (or 8.1 per cent) to total $1,138.9 million. Miscellaneous credit to households rose by $277.7 million (or 224.2 per cent) mainly due to a large increase in consolidated debt. Loans for education and technology also grew significantly (84.5 per cent) while motor vehicle loans slumped (-20.4 per cent) over the review period.

Loans to the business sector, which comprised 36.3 per cent of total credit to the private sector expanded by 16.2 per cent since March 2008, traced mainly to increases for the hospitality industry (114.5 per cent), construction (33.6 per cent), real estate business (32.2 per cent) and utilities (66.0 per cent).

The Cayman Islands maintained its strength in international banking as its assets ranked fifth in the world while total liabilities ranked sixth. Both total assets and liabilities increased by 1.1 percent and 2.8 percent respectively to tally at $1.83 trillion and $1.82 trillion in June 2008.

Meanwhile, licences for bank and trust companies declined anew in March 2009 compared to a year ago.

Notwithstanding the global financial crisis, licensees in the insurance sector rose from 788 in March 2008, to 815 as at March 2009. The leading primary businesses of captive insurance licences constituted of: healthcare (35.8 per cent), workers’ compensation (21.0 per cent), property (11.6 per cent), general liability (9.4 per cent) and professional liability (8.3 per cent). 

Reflecting the declining demand for similar assets worldwide, total mutual funds marked a second consecutive quarter-to-quarter downturn since the third quarter of 2008. This downturn levelled the total number of mutual funds to almost the same level in the first quarter of 2008.

During the review period, total new company registrations dropped drastically to 1,880 in March 2009, a 44.2 per cent reduction, the largest decline since 2001. This directly follows from significant falls in all types of company registrations. The decline may be associated with a slowdown in registration of special purpose vehicles due to a liquidity squeeze in source markets, and the general increase in risk aversion.

Air arrivals totalled 81,080 visitors, which was 14.3 per cent below the figures noted in the same quarter of 2008.  The sharp fall is not unexpected given the prevailing economic conditions in the markets. Moreover, air arrivals were expected to decline as business travellers and vacationers cut back on their expenditure following the credit crisis and ensuing liquidity squeeze. The reduction in air arrivals came from across all source markets. On the whole, it is noted that total arrivals approximated the level recorded in the same quarter of 2006.

During the first three months of 2009, cruise arrivals totalled 465,884 visitors, which is a decrease of 15.9 per cent over the first quarter of 2008. This is eight consecutive quarters of falling cruise arrivals since second quarter 2007. The number of cruise ship calls to George Town port decreased by 20.5 per cent to 178 calls during the first quarter of 2009; this is the third consecutive decrease in cruise ship visits recorded since 2007.

Indicators seem to suggest that the construction sector has been resilient so far amidst the economic downturn. In the first quarter of 2009, building permits inched upwards by 2.7 per cent to 269.

Construction intentions faltered in the first three months of the year, as project approvals crept downwards by 4.8 per cent to $107.4 million. The number of approvals also slipped from 288 for the same quarter in 2008 to 215. The decrease was broad-based with the exception of two categories (apartments and others).  The decline was most pronounced in the non-residential sector with all categories contracting: commercial (67.1 per cent), government (99.5 per cent), and industrial (90.4 per cent).

Non-residential project approvals dropped to $7.4 million compared to the $42.2 million recorded in the same period last year. In contrast, the apartment/condominium category was boosted with the unveiling of Secret Harbour a multi-million dollar exclusive Ritz Carlton development. This project singularly contributed $60.0 million (92 per cent) of the category’s $65.0 million.

Source: Cayman Islands First Quarter Economic Report 2009, Economics and Statistics Office, Portfolio of Finance and Economics