Estimates by the Economics and Statistics Office for a 1.9 percent growth of the Cayman Islands economy this year are about average in the Caribbean region. While Cayman has bounced back from the recession more than three years ago, the absolute size of the economy has not recovered, and growth is softer than it was before the financial crisis, according to Marla Dukharan, group economist for RBC Caribbean.
Speaking at the RBC Wealth Management-hosted Thought Leadership Forum last week, she said, “Even though Cayman had nearly four years of consecutive growth, the size of the economy is still smaller than it was pre-crisis.
“We do have a little bit of catching up to do to get to the point of where we were at in 2008.”
Ms. Dukharan estimates, on the basis of ESO statistics, that the financial sector directly contributes 56 percent of Cayman’s gross domestic product. Other major sectors are real estate activities with 8.7 percent of GDP, wholesale and retail trade at 8.36 percent, and hotels and restaurants, which account for 6 percent of GDP.
But the factors driving Cayman’s economy are not consistently strong, she noted.
Long term, the number of licensees with the Cayman Islands Monetary Authority have declined 47 percent since 2002, and in the first quarter of 2014 the finance and insurance sector contracted by 1.3 percent compared to the same period a year earlier. The total number of bank and trust companies was 4.5 percent lower year on year.
This was partially offset by an uptick in the number of licensees and registrations in the Cayman Islands Monetary Authority’s fiduciary services division, which have increased by 93 percent since 2001.
Tourism, the other economic driver, saw a similar contrast. Cruise ship arrivals have dropped significantly from the pre-crisis highs of 2.7 million in 2007 to about 1.37 million in 2013. In the first half of this year, cruise arrivals recovered by 8.6 percent, “but again, even though we are up, we are still nowhere near where we were on a pre-crisis basis,” Ms. Dukharan said.
Stay-over tourist numbers, in turn, have grown steadily, by 9.4 percent in the first half of this year alone.
This very positive trend for Cayman’s economy is unique in the region, Ms. Dukharan said. “In terms of stop-over arrivals, I have to say that nowhere else in the Caribbean would you see a chart like this.
Whilst the cruise arrival chart is not so promising, everyone else in the Caribbean wishes that their stop-over, which is where your high-value tourism is taking place, [would have developed in the same way].
“So whilst there is some softening in the offshore sector and global changes to the regulatory environment of that sector, for stop-over tourist arrivals, we are seeing some strong growth,” she added.
The strong growth in stay-over tourism is bolstered by the U.S. economy, which grew 4.6 percent on an annualized basis in the second quarter of 2014. About 80 percent of Cayman’s stay-over tourists come from the United States.
“That is what is driving the growth and what is holding promise for this economy,” Ms. Dukharan concluded.
The recoveries of the U.S. and the U.K. economies are also improving the outlook for the Caribbean region as a whole, as advanced economies are becoming a more important contributor to global GDP growth this and next year.
While advanced economies’ and global growth bottomed out last year, emerging market growth is expected to further decline this year.
As a result, the balance of global growth is changing. The World Bank estimates that, by the end of next year, advanced and emerging economies will contribute about 50 percent each to global growth rates, compared to currently 40 and 60 percent, respectively.
Within the Caribbean, the fastest-developing economies remain the commodity-exporting nations, such as the Dominican Republic, Guyana, Haiti and Suriname, with growth rates of 4 percent or higher, compared to tourism-driven economies which grow at an average rate of around 2 percent.