The Eastern Caribbean Currency Union (ECCU) is projected to generate economic growth of 2.8% in 2018, marking its seventh consecutive year of positive economic outturn.
This growth is driven primarily by increased economic activity in the tourism, construction, manufacturing and agriculture sectors.
In the short to medium term the macroeconomic outlook for the ECCU is positive, with real GDP growth expected to quicken to 4.2% in 2019, fuelled by continued strong performance of the tourism, construction, agriculture and other ancillary sectors, as well as inflows of foreign direct investment (FDI), influenced by the member States’ Citizenship by Investment (CBI) programmes.
Economic growth is, however, expected to be uneven across the grouping. Key downside risks for the Union include natural disasters, challenges to business competitiveness, and potential further loss of correspondent banking relationships (de-risking), which has already impacted some members’ offshore financial services sector and CBI programmes.
With respect to fiscal operations, ECCU generated an overall fiscal deficit of 0.1 million Eastern Caribbean dollars (EC$) during the first half of 2018. This represented a reversal relative to the EC$ 10.7-million surplus posted over the same period in 2017 and was attributable largely to the weaker performance on the capital account. In this regard, capital expenditure trended upwards as public investment in infrastructure increased and capital grants fell.
In respect of the former, Antigua and Barbuda, Grenada and Saint Lucia, for example, have embarked on various roadbuilding and restoration projects; and work is ongoing in Saint Vincent and the Grenadines to establish a geothermal plant on the island.
Over the review period, Saint Vincent and the Grenadines reported a smaller deficit, while Grenada, Saint Kitts and Nevis and Saint Lucia recorded larger overall surpluses.
This notwithstanding, the improved collective fiscal performance of these countries was insufficient to offset the worsening fiscal deficits recorded in Antigua and Barbuda and Dominica.
The overall fiscal balance of ECCU is expected to deteriorate further as governments increase capital expenditure, particularly on public infrastructure in efforts to address key structural gaps in transportation, connectivity and energy.
The Government of Grenada is currently focusing on climate-smart agriculture and upgrading of hospitals.
In addition, the China Development Bank has signalled its intention to finance the construction of a highway connecting the major towns on Grenada’s main island, deep-water ports that could accommodate a large number of cruise and cargo ships, a large wind farm to replace diesel-fuelled generators and a modernized airport with more, longer runways.
The Government of Saint Lucia is engaged in road restoration projects, and in Saint Vincent and the Grenadines, work is ongoing on a geothermal power plant, as noted above.
The buoyancy of the real sector in ECCU during the first half of 2018 was largely due to stronger performances in tourism-related activities and construction. There was an overall increase in tourism arrivals, which was driven by an improvement in cruise and yachting arrivals, particularly in countries that were not hit by hurricanes in 2017.
Manufacturing also showed a marginal improvement in ECCU in the first half of 2018, with contributions made by favourable performances in Saint Kitts and Nevis (for example, in the production of beverages), Grenada (beverages, chemicals and paint, and animal feed), Saint Lucia and Saint Vincent and the Grenadines (beverages and building materials).
In the agricultural sector, collectively, the ECCU recorded a slight improvement in the first half on 2018. In the banana industry (one of the Union’s main agricultural export crops), increased output in Saint Lucia, Saint Kitts and Nevis and Saint Vincent and the Grenadines offset the significant contraction in the output of Dominica as a result of Hurricane Maria.
The improved performance of the tourism, construction, manufacturing and agriculture sectors fostered stronger economic activity in wholesale and retail trade, transport, storage and communications, and in the real estate, renting and business activities sectors.
With respect to international trade, growth in re-exports drove an exceptionally strong expansion of ECCU exports —by 46.2%, from EC$ 536.7 million to EC$ 784.7 million. However, in absolute terms, this was insufficient to offset the 16.3% increase in imports, from EC$ 3.606 billion to EC$ 4.194 billion, driven by higher payments for mineral fuels and related materials (due to stronger