As at the end of June 2008, key indicators suggest that the Cayman Islands’ GDP contracted at an annualized rate of 7.1 per cent in the first half of 2009. The overall growth for 2009 is now projected at -5.8 per cent as recessionary conditions in source markets impact the domestic economy.
Partly reflecting the inflation path in the US, average inflation for the first half of 2009 was recorded at -0.2 per cent. This resulted mainly from decreases in housing (-6.2 per cent), clothing (-4.8 per cent) and transportation and communication (-2.5 per cent). Countering these pressures were strong price growth in food and household equipment and moderate growth in alcohol and tobacco, education and medical and personal goods and services.
Preliminary data for the first half of 2009 indicates that merchandise imports fell by 13.0 per cent to $368.8 million from the comparative period in 2008. This decline was anticipated in light of the projected economic downturn in the Cayman Islands. In absolute terms, merchandise imports fell by $54.9 million, partly due to reduction in building materials, transport and transport-related items, fuel and petroleum-related products, tobacco and alcohol and manufactured products.
The quantity of imported fuel fell by 3.8 per cent during the review period. Diesel imports, which account for 68.6 per cent of total fuel, fell by 4.5 per cent, while gas and aviation fuel grew by 3.6 per cent and 5.4 per cent respectively. Reduction in diesel is likely associated with declines in demand for electricity power.
In line with the downturn in economic activity, work permits in effect issued by the Immigration Department sharply contracted by 7.6 per cent in the first six months of 2009 from 26,260 in the same period of 2008. Declines were recorded in all skill classes of work permits with the steepest reductions occurring in the administration/managerial (14.6 per cent) and trades/technical/skilled (9.5 per cent) categories. Lower workers for permits in all industries were recorded in the first half of 2009, with the exception of ‘Other Community, Social and Personal Services’ which posted marginal growth of 1.4 per cent. The retrenchment of foreign employment was most severe in construction and tourism services.
Notwithstanding the credit crunch in advanced economies, total net domestic credit granted by the commercial banking sector in the Cayman Islands grew by 24.7 per cent to reach $3,002.9 million in June 2009. Loans allocated to both public and private sectors increased by 47.5 per cent ($130.9 million) and 21.7 per cent ($463.1 million) respectively, reflecting the possible impact of record-low lending rates on the demand for credit.
Loans allocated to households, which accounted for 62.7 per cent of total private sector credit, rose by 17.6 per cent (or $243.6 million) in June 2009 compared to June 2008. Credit for domestic property continued to dominate the increase in household lending in absolute terms. Meanwhile, lending to the business sector, which comprised 37.3 per cent of total private sector credit, grew by 29.3 per cent over the review period. The credit expansion was recorded for all sectors except utilities sector.
The Cayman Islands financial services sector continued to bear the brunt of the global financial shock in the first half of 2009. Total mutual fund licensees, listings on stock exchange for mutual funds, specialist debt and international equity, new company registrations and bank and trust licences were on a downward trend. However, growth still occurred in the captive insurance market, trust licences, Eurobonds and stock exchange listings.
Recessionary conditions in the advance economies continued to hit tourist arrivals. Compared to the first six months of 2008, total visitor arrivals to the Cayman Islands stood at 1,001,556 or a decrease of 7.2 per cent. Albeit at a lesser rate, this contraction was the second consecutive decline in overall visitor arrivals. Whereas cruise arrivals fell for the second year, air arrivals weakened for the first time since 2005.
After weakening in the first quarter of the year, the number of construction intentions as measured by project approvals held steady. However, the total value shot upwards by 21.9 per cent from $214.1 million in 2008 to $261.0 million. Residential projects continue to be the dominant type of future developments representing 66.2 per cent or $172.9 million of the total. Houses, with the approval of the next Frank Hall Homes Development and several multi-million dollar homes, bounced back sharply by 20.6 per cent from the first half in 2008 to reach $72.7 million.