Cayman’s economy entered the difficult period of the COVID-19 pandemic and related lockdown measures this year with a 1.9% first-quarter increase of its gross domestic product in real terms.
Although the hotel and restaurant sector had already suffered by March and showed a decline of 13.9% during the first three months of the year, other sectors, like the construction industry and real estate, surged during that period, with growth rates of 11.9% and 5.3%, respectively.
The finance sector, which represents the largest contribution to GDP, grew by an estimated 1.3% in the first quarter, the Economics and Statistics Office reported.
Cayman’s borders were closed in the second half of March and affected both stayover and cruise tourism.
“The sudden stop in the sector impacted the growth in some auxiliary sectors but was not sufficient to outweigh their growth in the first two and a half months of the quarter,” the ESO’s first-quarter economic report noted.
Government finances remained healthy in the first quarter, with an overall surplus of $176.3 million, as revenues of $353.2 million exceeded expenditures of $176.9 million.
As a result, central government’s debt fell to $279.3 million at the end of March 2020, lower than the $417.4 million recorded a year earlier.
Of course, much has changed since the first quarter. Cayman’s population has declined by more than 7%, and the government expects the economy to contract by at least 7.8% overall, depending on the effectiveness of stimulus measures. Unemployment is forecast to reach 7.6% by the end of the year, compared to an average of 3.5% in 2019.
The hotel and restaurant sector alone may contract by up to 80% in 2020, and tourism is expected to remain below 2019 levels for years to come, according to ESO estimates.
But despite the general contraction in most sectors, construction is expected to rise, as demand for construction services remains robust, the ESO economic report said.
Real estate could contract by 9% and is likely to face further declines as expatriate workers leave the jurisdiction, economist Marla Dukharan wrote in her Caribbean Monthly Economic Report for November.
Meanwhile, financial services will decline 3.7% in 2020 and business services will contract 1.7%, with downside risks based on volatility in international markets, she noted.
However, Dukharan is confident that, after years of fiscal surpluses, the Cayman Islands government has the financial means to respond to the crisis without increasing debt.
“Government stimulus measures aimed at providing low-cost funding to the private sector, increasing disposable income, and boosting construction activity, will continue to soften the blow,” she wrote.
Price inflation measured by the average consumer price index (CPI) is forecasted at 0.4% in 2020, as lower demand, low commodity prices and global restrictions related to COVID-19 are expected to suppress price levels.