Slower growth for the Bahamian economy

NASSAU, Bahamas, CMC – The Central Bank of the Bahamas (CBB) says indications are that the domestic economy’s growth trajectory persisted, albeit at a slower pace relative to the previous year, with economic indicators continuing to normalise closer to their expected medium-term potential.

In its “Monthly Economic and Financial Developments October 2024,” the bank said during October, indications are that the major economies maintained their moderated pace of economic growth, although developments continued to be impacted by the protracted geopolitical tensions in the Middle East and Eastern Europe.

“Against this backdrop, most major central banks paused their interest rate reduction stance during the review month, but signalled future rate cuts to encourage further economic growth, as inflation continues to moderate.”

The CBB said that tourism output continued to record healthy gains, but at a moderated pace, supported by robust growth in the cruise component, as the stopover segment remained constrained by accommodation capacity.

In price developments, average consumer price inflation, as measured by changes in the average Retail Price Index (RPI) for The Bahamas, declined during the 12 months to August 2024, vis-à-vis the corresponding 2023 period, owing to a decline in price pressures for imported fuel and other goods and services.

The CBB said monetary sector developments featured more moderate decline in banking sector liquidity than the previous year, although the buildup in the deposit base exceeded the increase in domestic credit.

“Similarly, the reduction in external reserves slowed notably during the review month, primarily due to net foreign currency inflows through the public sector and a tapering in net seasonal outflows via the private sector

“Expectations are that the pace of economic expansion will moderate over the remainder of 2024, as the domestic economy continues to converge toward its medium-term growth rate potential.

“Performance remains significantly linked to ongoing gains in tourism. Sustained foreign investment foreign investment projects are also anticipated to provide growth, through construction activities.

Tourism monthly data suggest that the tourism sector continued to post healthy gains during the review month, although at a more tempered pace, given stopover capacity constraints.

According to the most recent data provided by the Nassau Airport Development Company Limited (NAD), total departures reduced by 11.1 er cent to 90,900 in October compared to same period in 2023.

Leading this outcome, US departures contracted by 13.9 per cent to 75,186. In a slight offset, international departures grew by 5.6 per cent to 15,714 relative to the comparative period in the preceding year.

On a year-to-date basis, total outbound air traffic grew by 3.5 per cent to 1.4 million, although markedly less than the 25.2 per cent growth in the previous year. Specifically, US departures increased by 3.6 per cent to 1.2 million, while international departures rose by 2.9% to 0.2 million

The CBB said said on the labour market front, further improvements in employment conditions are projected, with additional job gains concentrated in the construction and tourism sectors.

“With regard to prices, inflation is projected to continue to moderate, underpinned by declining price pressures in energy and other imports. Nonetheless, consumers are expected to continue to adjust to the accumulated effects of recent years’ price increases.

“The upside risks to inflation that linger, hinge on global oil price uncertainty and supply chain shortages associated with geopolitical tensions in the Middle East and Eastern Europe.”

With regards to fiscal sector developments, the CBB said the government’s net financing gap should sustain its downward trend, noting that the anticipated ongoing gains in revenue remain contingent on tourism-led improving trends in taxable economic activities.

On the monetary front, the CBB said the banking sector liquidity is forecasted to remain elevated, as commercial banks retain their conservative lending posture. Moreover, the economic environment should encourage banks to increase their lending activities with the private sector.

Further, external reserves are projected to remain robust, exceeding international benchmarks in 2024. However, a reduction is likely, given the anticipated rise in domestic credit. Nevertheless, external balances should remain more than sufficient to maintain the Bahamian dollar currency peg.

“Specifically, foreign exchange market conditions are expected to remain at healthy levels, bolstered by inflows from tourism and other net private sector activities.”