Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review

DOMESTIC ECONOMIC DEVELOPMENTS

The overall balance on the consolidated fiscal accounts of member governments reverted to a surplus position after recording a deficit last year. The turnaround resulted from developments on the current account, which more than offset the impact of higher capital outlays. Despite the improvement in the overall fiscal performance, the outstanding debt of the public sector rose, driven in part by increases in both external and domestic borrowing. The overall robust economic activity was reflected in the major monetary aggregates of the banking sector, as net foreign assets, monetary liabilities and domestic credit recorded expansions. Liquidity in the commercial banking system improved, associated with an expansion in the deposit base, despite an increase in credit. In the external sector, the merchandize trade deficit widened, largely driven by growth in import payments. Short to medium term growth forecasts for the economy of the ECCU are favourable, based on positive GDP projections for all member territories. The main impetus for this outlook is the anticipated robust construction activity, supported by strengthened performances in other major sectors, including hotels and restaurants, one of the main proxies for activity in the tourism

industry. Any improvement in these sectors of the economy is likely to have associated positive knock-on effects on a number of auxiliary sectors, including wholesale and retail trade and transport, storage and communications. Inflationary pressures are likely to persist but remain constrained. This is premised on the expectations of a slowdown in global economic activity and moderation in commodity prices relative to the levels in 2018, especially oil. However, sustained improvements in domestic demand is expected to put upward pressures on the non-tradable component of the consumer basket, partially offsetting some of the downward pressures from fall in international prices. It is anticipated that despite fiscal and debt challenges, the positive economic performance, along with governments’ continued fiscal consolidation and debt management efforts, may contribute to an overall surplus. The economic outlook for the ECCU region remains contingent on developments in the global economy, which notwithstanding downside risks, is projected to expand by 3.3 per cent in 2019 . Downside risks to the forecasts include uncertainty in the achievement of global growth targets, challenges associated with the UK with

______________________________________________________________________________ 2 Eastern Caribbean Central Bank

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