Caribbean360: ECCU growth revised downwards

ECCU growth revised downwards
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Chris Hoyos on 24/10/2011 11:36:00
 
BASSETERRE, St. Kitts, Monday October 24, 2011 – The Eastern Caribbean
Currency Union (ECCU) is projected to record real growth of 0.4 per cent this
year following two previous years of negative growth.
However, the Eastern Caribbean Central Bank (ECCB) said the projection is still
down from its previous forecast for 2011.
This was caused by a 0.2 percent contraction in first quarter of 2011, though
there was improvement in the second quarter driven by a 6.5 per cent increase in
tourist arrivals, according to a communiqué issued following the 71st meeting
of the ECCU.
It said elevated unemployment rates and weak payroll growth in the advanced
economies will restrict growth in tourism, which is one of its major export
sectors.
It stated further: “A recorded increase in imports of building and
construction materials, coupled with an increase in commercial bank credit for
home construction and renovation, suggests that construction activity was at a
higher level relative to the second quarter of the previous year.”
“With the advanced economies continuing to perform below expectations,
challenged by fiscal stresses, financial sector instability and pessimistic
consumers, the near-term macroeconomic and financial outlook for the ECCU area
remains highly uncertain, with significant downside risks,” it said.
Liquidity in the banking system, the release explained, continued to improve
primarily due to increases in grant and official inflows.
“Commercial bank deposits rose by 1.4 per cent, roughly the same as the
outturn in the second quarter of 2010 and credit growth continued to be sluggish
at 0.4 per cent, but this is consistent with the weak economic activity over the
review period and also reflects tighter loan terms and conditions in the
commercial banking sector.
“The foreign reserves of the Central Bank expanded by 5 per cent, relative to
an expansion of 2.5 per cent in the comparable period of 2010 due to grant and
loan inflows and an improved performance by the tourism industry.”
It was decided that the ECCB would maintain the minimum savings deposit rate at
3.0 per cent and the Central Bank’s discount rate at 6.5 per cent.
The Monetary Council has approved the “urgent establishment” of a single
financial space among OECS states in accordance with the Economic Union; a
restructured indigenous banking sector; a consolidated insurance sector; and a
rationalised credit union sector among other measures.
It recommended that the insurance and credit union sectors be analysed to
determine the status of individual entities and approved the institutional
arrangements for coordinating the implementation of financial sector reform
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