Cayman’s economy is expected to contract by 7.2% this year before recovering partially with a 6.4% expansion in 2021. Finance Minister Roy McTaggart presented government’s latest economic estimates at last week’s Economic Forum, hosted online by the Chamber of Commerce.
The estimates include the effect of government measures to contain the spread of the virus, increase disposable income and boost economic activity, the minister said.
However, the reduced demand for tourism and other services continue to be impacted by the border closures and the economic contractions in the US and other advanced economies.
“These developments have the potential to stifle our recovery further if the trend persists and the US enters another extended lockdown period,” McTaggart said.
So far hotels and restaurants are bearing the brunt of the lockdown measures and the resulting absence of tourism with a projected 74.6% decline this year.
In comparison, the transport, storage and communication sector is expected to contract by 14.7%.
Even the finance and the business services sectors are forecast to take a 3.8% and 1.7% hit, respectively, for the year.
McTaggart said the financial industry had generally shown its resilience in the short term as its employees took relatively well to working remotely and most services were already offered online.
However, government believes business services are going to be affected by a wider drop in domestic and international demand in the latter part of the year.
“Notably, there is a considerable downside risk to the forecast in both the legal and accounting components of this sector. Economic activities could be impacted by uncertainties in international financial markets going forward,” the finance minister said.
“If this risk develops, the government stands ready to partner with the business community to enact the necessary legislative changes to maintain a vibrant financial and business services industry.”
In contrast to the rest of the economy, government spending on healthcare and essential services, and government activities, are expected to boost economic activity.
McTaggart forecast an unemployment rate of 6.9% across the entire labour force for 2020, as the demand for workers is expected to track GDP growth.
Over the medium term, new employment is expected from the recovery of labour-intensive industries such as tourism. For 2021, government is therefore projecting a lower unemployment rate of 5.1%.
The economic projections did not include the fallout from the decision to close Cayman to cruise ships for the remainder of the year. The economic contraction of 7.2% was predicated on borders gradually opening in September, McTaggart cautioned.