Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review

DOMESTIC ECONOMIC DEVELOPMENTS

Moreover, along with the greater need to be a competitive region, policies to tackle head on the social challenges of poverty, unemployment and crime that confront the region, must be top priority. On the external accounts, the merchandise trade deficit is expected to widen, on the premise of higher import payments. The total import bill for the region is likely to increase, associated with the anticipated buoyancy in the construction sector and rebuilding and renovating activities post- hurricane. As the number of visitors increase, so does the tendency to augment imports to cater to the increasing demand; hence further developments in the tourism industry are also expected to contribute to a higher import bill. Stable conditions in the financial sector are expected to persist, driven by on-going efforts of the ECCB to strengthen that sector. The implementation of a Fintech pilot project in the ECCU aimed at bolstering the region’s competitiveness augurs well for the banking sector. Monetary aggregates are projected to expand, driven by increases in private sector savings and demand deposits, consistent with positive forecast for growth in 2019. Credit to the private sector, however, is likely to moderate, as lending conditions

may remain relatively tight. Liquidity is likely to ease further as macroeconomic conditions improve. Amid uncertainty, persistent fiscal deficits and unsustainable debt levels, efforts to address any weaknesses in the banking system and to mitigate the impact of potential risks are among major policy priorities for the continued development of the region and its people. Although global dynamics indicate economic expansion in 2019, significant risks remain, which can potentially derail the realization of these forecasts . These risks tilt to the downside and include lower than anticipated global economic activity, attributable in part to an escalation of trade tension and the uncertainties for the UK economy associated with Brexit. The materialization of these risks can negatively influence the demand for leisure and impact tourism activity, which plays a key role in the region’s economy. Additionally, investment flows to the ECCU have serious growth implication and remain vulnerable to external market conditions. Like all other countries, the ECCU needs to implement measures to boost potential output growth and foster inclusivity. On the domestic front, continuous accumulation of debt, emanating from larger financing gaps associated with fiscal

______________________________________________________________________________ 18 Eastern Caribbean Central Bank