Bahamas Central Bank projects slower economic growth

The Central Bank of the Bahamas (CBB) reports that the domestic economy continues to grow, albeit at a slower pace compared to the previous year, as key indicators approach medium-term potential.

Global Economic Context:

Major economies maintained moderate growth amid ongoing geopolitical tensions in the Middle East and Eastern Europe. Most central banks paused interest rate reductions, signaling potential future cuts to stimulate growth as inflation eases.

Tourism Sector:

Tourism remained a key growth driver, with robust cruise activity partially offsetting constraints in stopover accommodations. Monthly data showed tempered growth in October, with total air departures down 11.1 percent year-on-year, driven by a 13.9 percent decline in U.S. departures.

International departures rose 5.6 percent. Year-to-date, total outbound air traffic grew 3.5 percent, a sharp slowdown from the 25.2 percent growth in 2023.

Inflation and Prices:

Consumer price inflation eased over the 12 months to August 2024, primarily due to declining imported fuel and goods costs. Inflation is expected to moderate further, though global oil prices and geopolitical uncertainties pose risks.

Monetary Sector:

Banking sector liquidity declined at a slower pace than in 2023, supported by a strong deposit base. External reserves remain above international benchmarks, though they are expected to decrease slightly with rising domestic credit demand.

Labor Market:

Employment conditions are improving, with job growth concentrated in construction and tourism. However, consumers continue to face pressures from recent price increases.

Fiscal and External Outlook:

The government’s financing gap is projected to narrow due to stronger revenue tied to tourism-led economic activity. Financing will likely rely on a mix of domestic and external borrowings, with domestic sources playing a larger role.

External reserves are expected to remain robust, supported by tourism inflows and private sector activity.

Risks and Outlook:

Economic expansion is expected to moderate further in late 2024, with sustained growth dependent on tourism and foreign investment. Downside risks include geopolitical tensions, rising oil prices, and travel sector disruptions.

The CBB emphasizes the importance of managing these risks to ensure stable economic growth and resilience.