economic review 2009

8/2/2019 Economic Review 2009

1/18

ECONOMIC REVIEW 2009


2/18

Overview

In 2009 the effects of the global economic crisis continued. Advanced economies such as theUnited States, United Kingdom, European Union and Japan contracted while emergingeconomies like China and India did not achieve double digit growth. The global recovery

process intensified in 2009 but the process was slow given the systemic nature of the crisis andthe severity of the recession. However, fiscal and monetary policies seemed to be working.Since the latter part of 2009 deterioration in the labour markets eased, global trade improved,domestic demand increased (especially in emerging economies) and financial markets recovered.Nonetheless, the achievement of pre-crisis levels of confidence in the global economy,employment and growth are still years away.

Caribbean countries also faced severe challenges in 2009 as the global economic and financialcrisis intensified. Output in these fragile open economies tapered, unemployment grew,government revenue decreased and receipts from tourism and financial services fell. On apositive note, however, as demand dropped and international commodity prices moderated,

inflationary pressures across the region eased.

Given the heavy dependence of the Virgin Islands economy on international markets, overalleconomic activity in the Territory further contracted in 2009 by 11.7 percent as the globaleconomy slowly began the recovery process. Consequently, Government revenue decreased by4 percent as a result of a fall in tax receipts (such as payroll tax, import duties and tourism relatedtaxes), and fees from company incorporations. Additionally, given the decline in economicgrowth unemployment levels were expected to increase in 2009, although official statistics to donot exist to quantify the actual unemployment rate. Inflation on the other hand was modest withaverage prices increasing by only 3 percent compared to 7.5 percent in 2008 (see Table 1).

Table 1: Key Economic Indicators 2006 - 2009Economic Indicator 2006 2007 2008 2009

Nominal GDP ($000) revised estimates 942,473 1,011,093 992,030 876,310Economic Growth (%) 8.3 7.3 (1.9) (11.7)Inflation (%) 2.7 2.5 7.5 3.0GDP per capital ($) 35,184 36,743 35,162 30,341

Source: Development Planning Unit

Economic Growth

International PerformanceReal Gross Domestic Product (GDP) in the United States fell by 2.4 percent in 2009 largely as aresult of steep reductions in output in the first 6 months of 2009. International Monetary Fund(IMF) estimates indicated that the fall in output was not as high as initially forecasted givenaggressive fiscal and monetary policies and rapid inventory rebuilding. Increased privateconsumption, stronger US exports and a slower rate of job losses also contributed to higher than


3/18

expected output. Real GDP growth in the third and fourth quarters of 2009 was thereforepositive (2.2 percent and 5.6 percent respectively).

Europe was among the hardest hit in the global crisis. The region was plagued by constructionslow-downs, banking sector problems, large fiscal deficits and disrupted export markets; output

in the European Union declined by 4.1 percent. Similarly, the United Kingdoms economyexhibited the worst performance since the Great Depression. The contraction in economicgrowth by 4.9 percent in 2009 was influenced by the downturn in the global financial systemwhich led to declines in the real estate sector, tight credit conditions and high rate of job losses.

By contrast, the Chinese economy expanded by 8.7 percent; a 1.1 percent decrease from 2008.This drop in output performance resonated from a decline in global trade given the slowdown inthe economies of Chinas largest trading partners the United States and Europe. However,high domestic demand and aggressive stimulus packages aimed at promoting domestic capitalinvestment assisted in maintaining Chinas strong growth.

Regional PerformanceEconomic growth in the Caribbean region although positive was still below 2008 figures.Output in the region expanded by only 0.4 percent compared to 2.9 percent in 2008. Althoughthe decline in economic activity varied among countries the main direct effect of the globaleconomic crisis was felt through reduced demand for regional exports. Barbados and theBahamas for example experienced a dramatic reduction in tourism arrivals while Jamaicaexperienced a decline in the demand for bauxite exports. Lack of Foreign Direct Investment(FDI) also resulted because of investors uncertainty about the recovery of the global economyand thus their reluctance to commence new infrastructural development projects or scale back onexisting ones.

Virgin Islands PerformanceThe major consequence of the global economic downturn was the impact on the two main pillarsof the economy financial services and tourism. Reduced tourist arrivals and financial servicesbusiness contributed greatly to the short-falls in output and negatively impacted industries suchas construction, real estate and wholesale and retail since they depend heavily on the robustnessof these two sectors. Estimated nominal GDP figures for 2009 indicated that the economycontracted by 11.7 percent the largest drop recorded over the past 16 years. Between 2002 and2003 a similar decline in GDP growth was experienced due to the delayed effects of theSeptember 11 phenomena. In 2003 GDP declined by 9.49 percent which was 2.18 percentagepoints less than the decline in 2009. Nominal GDP fell by $115.7 million to $876.3 million in2009 (see Table 1 and Figure 1). When adjusted for inflation, the level of economic activity orreal GDP decreased by 13.5 percent.


4/18

Figure 1: Nominal GDP Growth (2006 2009)1


All sectors of the economy including the major contributors to GDP in 2009 namely Real Estate,Renting and Business Activities, Hotel and Restaurant, Wholesale and Retail, Transport andCommunication and Construction contracted in 2009 accounting for the fall in output.

Real Estate, Renting and Business Activities, which are mainly composed of contributionsfrom the financial services industry, represented 28.9 percent of total GDP and provided $253.6million to the total output of the Virgin Islands economy. In 2009 growth in output from thissector fell by an estimated 12.5 percent from $289.6 million in 2008 mainly as a result of

reductions in company incorporations which dropped by 32 percent and the slow-down of relatedfinancial services activities such as mutual fund registrations and captive insurance licensing.The real estate and renting sector also experienced downward pressure as a result of the declinein demand for rental properties and the contracting market for property sales. Financialintermediation, which is also a contributor to the financial services sector, continued to fallrecording an estimated 23.1 percent decline in growth in output in 2009.

The Hotel and Restaurant sector is the second largest direct contributor to output in the VirginIslands accounting for 13.4 percent of output or $117.7 million in 2009. Output in this sectordeclined by 17.4 percent from $142.5 million in 2008 mainly as a result of a decline in touristarrivals and tourism earnings. Overall tourist arrivals fell by 8.3 percent. Overnight tourist

arrivals and cruise ship arrivals declined by 10.8 percent and 7.2 percent respectively.

The Wholesale and Retail sector also felt the repercussions of decreased tourism arrivals andthe reduction in demand for goods and services as households reduced spending given theuncertainty with the global economy and the implications for the Virgin Islands economy. Thecontribution of this sector to GDP fell by $19.3 million or 14.3 percent in 2009.

1 Based on revised GDP estimates.


5/18

Economic activity in the Construction sector continued to contract. In 2009 growth in outputfor this sector fell by 11.4 percent from $70.8 million in 2008 to $62.8 million in 2009. Thisdecline was a reflection of the limited new projects (residential and commercial) thatcommenced in 2009 and no major infrastructural Government development projects

commencing in 2009. Based on statistics from the Public Works Department there was a 32.2percent decrease in the number of plans submitted for approval in 2009 suggesting a decline inconstruction activity in the Territory.

Industry Contributions to GDP

Figure 2 illustrates estimated industry contributions to GDP for 2009. Tourism, financialservices, construction, and business services account for about three-quarters of total economicactivity in the Territory. This level of contribution highlights the importance of tourism andfinancial services to the economy and the significant impact on other sectors such asconstruction, real estate and wholesale and retail.

Figure 2: Sector Contributions to 2009 GDP



6/18

For national accounting purposes tourism is composed of the hotels and restaurants and

varying percentage distributions of the following sectors: wholesale and retail,

transportation and communication, and the real estate, renting and business services.

Additionally, the financial services sector comprises financial intermediation (banking,

insurance companies, and investment services) and the business services (accounting,

company management, legal, trust companies, etc.) component of the industry category

real estate, renting and business services.

Inflation

Declines in international commodity prices including crude oil in the first half of 2009 as well asthe reduction in demand for goods and services worldwide in 2009 has resulted in lowerinflationary pressures in most countries in the region and worldwide. The United States and other

advanced economies experienced deflation where overall average prices for goods and servicesdecreased or very low levels of inflation occurred. Other Territories with similar economies tothat of the Virgin Islands namely Bermuda and the Cayman Islands have also encounteredlower inflation levels (see Table 2).

Table 2: Inflation Rates (%) for Select Countries

2008 2009

BVI 7.5 3.0

Advanced and

Emerging

Economies:

United States 3.8 (0.3)United Kingdom 3.6 2.2

Japan 1.4 (1.4)

China 5.9 (0.7)

Caribbean:

Bahamas 4.5 2.1

Barbados 8.6 3.1

Bermuda 4.8 1.8

Cayman Islands 4.1 (1.3)

Jamaica 16.8 10.2Sources: IMF (April 2010)

ECCB Annual Economic and Financial ReviewInflat ion Reports Cayma n ermudaIslands and BDevelopment Planning Unit

Average prices for goods and services in the Virgin Islands rose by approximately 3.0 percent in2009 compared to 7.5 percent in 2008. This decrease was mainly associated with the fall in theTransportation category of the Consumer Price Index (CPI) by 4.5 percent as a result ofreductions in the price of gasoline from record highs in 2008 (see table 3 for gasolinecomparisons) and the fall in airline fares. The reduction in the inflation rate was also attributable


7/18

to the prices in the major categories such as food, beverages and tobacco, clothing and footwearand housing rising by a lower rate in 2009 than in 2008. Food and beverage prices rose onaverage by 6.0 percent in 2009 compared to 12.6 percent in 2008. Similarly, clothing andfootwear increased modestly in 2009 compared to 2008 where price increases where 4.4 percentand 10.5 percent respectively (see Table 3).

Table 3: Annual Percentage Change in Prices by Sub-Groups (2007-2009)

2007 2008 2009

Major Sub Groups

Food, Beverage & Tobacco 4.7 12.6 6.0

Housing 2.2 4.6 2.6

Furniture & Household Supplies 0.0 0.1 0.5

Clothing & Footwear (1.3) 10.5 4.4

Transportation 5.1 10.4 (4.5)

Services 3.6 2.8 7.7

Miscellaneous2

0.1 7.4 (1.2)

Annual Inflation Rate 2.5 7.5 3.0Source: Development Planning Unit

In 2009 gasoline prices3 in the Territory were below 2008 but increased steadily from thebeginning of 2009 as the price of crude oil increased (see Table 4). Diesel prices exhibited asimilar trend over the two year period.

Table 4: National Average Price per Gallon Gasoline

2008 2009

Change

($)

Change

(%)

January 3.91 2.85 1.06 (27.1)

February 3.94 2.89 1.05 (26.7)

March 4.04 2.93 1.11 (27.5)

April 4.23 2.93 1.29 (30.6)

May 4.66 3.04 1.62 (34.8)

June 4.91 3.40 1.51 (30.8)

July 5.06 3.58 1.48 (29.2)

August 4.99 3.55 1.44 (28.9)

September 4.75 3.66 1.10 (23.1)

October 4.69 3.66 1.02 (21.9)

November 3.88 3.72 0.16 (4.1)December 2.95 3.83 (0.88) (29.7)


2 Consists of toiletries, books and toys3 Average prices obtained by the Development Planning Unit and are based on the prices collected from select petrolstations in the Virgin Islands. Unleaded gasoline prices are collected.


8/18

The Territory has little control over inflation. Changes in the price level are determined by

mainly external factors. Inflation is imported from the United States since the majority of

goods consumed originate from that market. The inflation rate in the Virgin Islands

therefore usually mirrors that of the United States, but price levels are historically higher

as a result of additional costs associated with importing goods, such as shipping, duty,

storage, etc. Price fluctuations in the Virgin Islands usually lag behind those in the UnitedStates.

Labour Market

The most recent statistics indicated that the labour force grew by 6.5 percent in 2008 fromapproximately 18,505 persons in 2007 to 19,713 persons in 2008 (see table 5). This informationis based on employment data from Social Security records and the unemployment rate from the2001 census data (3.1 percent).

The demand for labour decreased in 2009 as a result of the global economic crisis and the

negative impact on business sectors in the Territory. This was evidenced by the drop in thenumber of work permit applications in 2009 compared to 2008. New work permit applicationsfell by 50 percent in 2009 given the reduction in the amount of new jobs available compared toprevious years. Anecdotal information (in the absence of unemployment statistics) alsosuggested that the rate of unemployment increased in 2009. Establishments in the tourism,financial services and construction industries laid off employees however, it is unclear whethersuch redundancies resulted in persons being reabsorbed by other establishments within theTerritory.

Table 5: Labour Market Estimates

2005 2006 2007 2008

Total LabourForce 16,751 17,481 18,508 19,713

Employed 4 16,232 16,939 17,931 19,098

Unemployed 5 519 542 577 615Source: Development Planning Unit

4 Employment data is based on information from Social Security records.

5 Unemployment statistics are estimated based on information from the 2001 Census. Unemployment data is notbased on labour force surveys therefore the degree of accuracy is less reliable than employment data which isobtained from Social Security records.


9/18

Tourism

International PerformanceThe further deterioration of the global economy in 2009 negatively impacted the demand forglobal travel. Decreased employment, low consumer and business confidence in the economy,

slow global economic recovery and uncertainty around the influenza A(H1N1) global pandemicresulted in 2009 being a difficult year for the tourism industry in many countries. However,figures released by the World Tourism Organisation (UNWTO) indicated that internationaltourism did not perform as badly as initially forecasted. International tourist arrivals forbusiness, leisure and other purposes were estimated to have declined worldwide by 4 percent in2009. This better than average global performance was based on the 2 percent upturn whichoccurred in the fourth quarter of 2009.

Tourism expenditure also suffered as a result of the declining trend in arrivals. Estimates fromthe UNWTO based on trends for the first three quarters of 2009 indicated that tourism receiptsdecreased by approximately 6 percent in 2009.

Regional PerformanceTourism arrivals in the Caribbean got off to a sluggish start in 2009 as a result of recessionaryconditions in the major markets of North American and Europe. However, towards the end ofthe year arrivals rebounded. According to the Caribbean Tourism Organisation (CTO) aggregatetourist arrivals to the 33 CTO member countries of which the Virgin Islands belongs declined by3.6 percent in 2009 with quarterly data showing successive improvements during the year. Bythe fourth quarter 2009 regional tourism arrivals increased by 1.0 percent. Statistics from theCTO further indicated that larger CARICOM countries fared better with single digit declines intourism traffic compared to the smaller OECS countries that experienced double digit decreasesin arrivals in 2009. Aggressive marketing and price specials extended by cruise lines accountedfor the regional increase in cruise passenger arrivals which, according to CTO, rose by 1.4percent in 2009. Although comprehensive expenditure data is not readily available a reductionin arrivals and the existence of a more conservative tourist a fall in average spending wasexperienced region wide.

Virgin Islands PerformanceThe unfavourable global economy continued to negatively impact the growth in tourism traffic inthe Virgin Islands. Preliminary summary statistics indicated that total visitor arrivals were downby approximately 8.3 percent from 934,268 in 2008 to 856,863 in 2009 (see Table 6). This wasabove the regional average. Consistent with global and regional trends, tourism arrivals in theVirgin Islands declined significantly by 11.2 percent in the first 3 quarters of 2009 compared tothe same period in 2008. Fourth quarter 2009 figures, however, rebounded and were slightlyabove arrivals for the fourth quarter in 2008 (see Figure 3). In line with the reduction in touristarrivals, tourism expenditure decreased by 17 percent from $446.5 million in 2008 to $369.0million in 2009 therefore reducing the contribution of the sector to the economic growth. Thenumber of persons visiting the Virgin Islands for a day increased by 8 percent in 2009 comparedto 2008.


10/18

Figure 3: Quarterly Comparison Tourism Arrivals

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Q1 Q2 Q3 Q4

2009 2008


Table 6: Annual Tourism Comparison by Category

Cruiseship Overnight Daytrippers TOTAL

2009 530,327 308,793 17,744 856,863

2008 571,749 346,034 16,485 934,268

Change (41,422) (37,241) 1,259 (77,405)

% Change (7.2) (10.8) 8% -8%Source: Development Planning Unit

Overnight VisitorsOvernight tourist arrivals began decreasing from the second quarter in 2008 as North Americanconsumers (major tourism market for the Virgin Islands accounting for 68% of overnight arrivals 2006 estimate) cut back expenditure in response to global economic uncertainties. Overnighttourist arrivals which accounted for approximately 36 percent of the market decreased by 10.8percent in 2009 (see Table 6). Overnight arrival figures also rebounded in the fourth quarterfollowing decreases in the first part of 2009 (see Figure 4). This upswing in the market could be

attributed to aggressive advertising campaigns initiated by the BVI Tourist Board in both thebroadcast and print media which included an international television advertisement on the CableNews Network (CNN) and Headline News (HLN) aired from July to September 2009. Reducedairfares, increased aviation capacity to the Territory, discounting by hotels, optimistic forecastsof global economic recovery and restored consumer confidence also contributed to increase intourist arrivals in the last quarter of 2009.


11/18

Figure 4: Quarterly Overnight Tourist Arrivals (2007-2009)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Q1 Q2 Q3 Q4

2007 2008 2009


Cruiseship VisitorsCruise tourism sector remained the largest contributor of visitors to the Virgin Islands in 2009

accounting for 62 percent of the tourism market. Although in the region cruise tourist arrivalfigures increased, the Virgin Islands experienced a decline of 7.2 percent from 571,749 in 2008to 530,327 in 2009. A slower than average non-peak season in the third quarter and lower arrivalnumbers compared to 2008 in the first and second quarters contributed to the negative growth.However, cruise arrivals did rebound in the fourth quarter exceeding 2008 fourth quarter figuresby approximately 3,000 but this was not enough to make up for the drop off in the earlier part of2009 (see Figure 5). 353 cruise ships visited the Virgin Islands compared to 409 in 2008representing a 13.7 percent decrease.


12/18

Figure 5: Quarterly Cruise Tourist Arrivals (2007-2009)

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Q1 Q2 Q3 Q4

2007 2008 2009


Financial Services

The financial services industry mainly through the incorporation of international businesscompany fees is the major source of Government revenue accounting for approximately 60% ofoverall receipts in 2009. The financial services is also a major contributor to economic growth,providing jobs and income to a vast majority of residents, as well as being one of the leadingindirect contributors to the expansion of other industries, such as construction, communications,

real estate, and renting.

In addition the industry is highly dependent on external demand for company incorporations andauxiliary services. Although the local banking industry was not directly impacted by the bankingcrisis due to the limited exposure of commercial banks to the sub-prime crisis the entire industryhas been affected by the global economic crisis as it deepened in 2009.

IncorporationsCompany incorporation figures dropped by 23 percent in 2009 (see Figure 6). Although, this isa significant decrease, the overall number of active companies registered in the Virgin Islandsstill remains in the region of 410,000. Government incorporation fee revenue was therefore not

been heavily impacted since re-registration income remained strong in 2009.


13/18

Figure 6: New Incorporations Comparison (2006 - 2009)

0

10000

20000

30000

40000

50000

60000

70000

80000

2006 2007 2008 2009

Source: Financial Services Commission

Mutual Funds and InsuranceA significant proportion of mutual fund and captive insurance business is driven by the UnitedStates market. These important sub-sectors experienced negative growth on the heels of theprolonged and challenging economic conditions in North America and other advancedeconomies. Tight liquidity conditions in financial markets have resulted in high levels ofredemptions in the mutual funds market as investors seek increased liquidity. Given the declinein economic activity worldwide the need for fund structures to finance investment opportunitieshas subsided, therefore, new mutual fund registrations also declined in 2009. Registration

figures for professional, private and public funds collectively decreased by 32.7 percent in 2009.The number of public funds halved in 2009 and the most popular fund - the professional fund -exhibited a 34.1 percent decline (see Table 6).

Similarly, the number of captive insurance licenses issued in 2009 decreased by 12.5 percentwhile in the domestic insurance industry 3 additional licenses were added (see Table 6).

Table 7: Mutual Funds and Insurance

2008 2009 % ChangeMutual Funds

Professional 258 170 (34.1)

Private 68 52 (23.5)

Public 13 6 (53.8)

TOTAL 339 228 (32.7)

Captive Insurers 319 279 (12.5)

Domestic Insurers 30 33 (0.1)

Source: Financial Services Commission


14/18

Banking and FiduciaryThe Virgin Island is characterised as a conservative banking jurisdiction compared with otherinternational financial centres and hence has not grown significantly in terms of the number ofbanks and their asset size. In addition, the sector has not been impacted significantly by thebanking crisis due to the limited exposure of commercial banks to the sub-prime mortgage crisis.

At the end of 2009 there were 9 banking institutions licensed to operate in and from within theVirgin Islands with total assets of approximately US$2.49 billion. The trust sector has notexperienced significant levels of growth in terms of the number of licensed entities. At the endof 2009 105 general trust licenses (Class I, II and III) had been issued along with 119 restrictedtrust licenses (Class II and III).

Global Economic Outlook 20106

Most countries in the world have battled for the last 2 years with the repercussions of the worstrecession since the 1920s. This severe global economic slow-down has negatively impacted in

varying degrees the development and growth of many countries. On the positive side globaleconomic recovery is evolving and at a pace better than initially expected. Unprecedented policyintervention via fiscal and monetary measures has laid the foundation for the global recoveryprocess thus eliminating the risk of the continued deterioration of economies. Other factors suchas slower worsening of labour markets, the normalization of global trade, high domestic demandespecially in emerging economies and recovering financial markets are contributing to growthand recovery of global economies.

Estimates from the International Monetary Fund (IMF) indicated that world output for 2010would be about 4.2 percent (1 percent up from initial projections) offsetting negative growth in2009. The strength of the rebound however, is forecasted to be sluggish given the severity andthe systemic characteristics of the recession.

Emerging and developing countries will be recovering at a faster pace than advancedeconomies and leading growth in 2010 with output expected to expand by 6.3 percent. Chinasprojected double digit growth of 10 percent is the driving force behind the recovery followedclosely by India and Brazil which are expected to grow by 8.8 percent and 5.5 percentrespectively. This level of growth is supported by improving external demand for goods andservices as the US and European economies slowly rebound, higher commodity prices, strongdomestic demand encouraged by public sector infrastructural developments and robust privatesector consumption and investment and good fundamentals (sound financial systems, solidbalance sheets) which are helping to re-attract capital flows.

Advanced economies such as the United States, Japan and the EU that sustained larger outputloses during the recession and had greater pre-crisis fiscal imbalances are expected to recover ata slower rate. The US recovery is expected to be stronger than the EU and Japan with projectedgrowth rates of 3.1 percent, 1.0 percent and 1.9 percent respectively in 2010. The recovery will

6 Source: IMF (April 2010).ECCB Annual Economic and Financial Review


15/18

be tempered by households continued efforts to re-build wealth and reduce indebtedness, weaklabour market conditions and the expected slow process of financial sector repair.

Unemployment is projected to remain high in 2010 and inflation expected to remain subdued asa result of excess global capacity and low levels of aggregate demand. Predictions indicate that

the US unemployment rate will be 9 percent in 2010 before declining to 8 percent in 2011 asemployment growth picks up. Inflation is expected to be at 2 percent in 2010 and 1 percent in2011.

The economic outlook for the Caribbean is one of controlled optimism and is highly dependenton the level of recovery by the regions main trading partners. Real GDP is forecasted to growby 1.5 percent in 2010 and by 4.3 percent in 2011 as global economic recovery picks upmomentum. Economic activity in the Eastern Caribbean Currency Union (ECCU) is however,projected to contract in 2010. Slow or negative growth is precipitated by weak prospects fortourism and financial services growth, lower financial flows to the region as major tradingpartners reassess their economies and fiscal balances, lower foreign direct investment (FDI)

inflows which will dampen private construction and the absence of expansionary polices giventight fiscal budgetary constraints.

Virgin Islands Outlook 2010

Expectations for the Virgin Islands economy in 2010 are highly dependent on the extent andpace of recovery of the US, European and Asian economies. As these consumers regainconfidence and start spending again and business becomes more buoyant the Territoryseconomy will reap the benefits from increased tourism arrivals, financial services business andFDI inflows. Recovery will be slow and negative growth is predicted to still be recorded, but theeconomys performance should be better across the sectors in 2010. This prediction is supported

by the growth in tourism arrivals for the first quarter of 2010 which are higher than the sameperiod in 2009. Additionally, incorporations for the first quarter of 2010 or up compared to thesame period in 2009. Positive growth levels might not return to the Virgin Islands until 2011 andthe level of growth will still be under pre-crisis levels.

Tourism

According to the UNWTO, 2010 promises to be a year of transformation and forecasts growth ininternational tourism arrivals of between 3 percent and 4 percent. The CTO projections for theregion are slightly more conservation suggesting tourist arrivals should improve between 2percent and 3 percent in 2010. Some of the hindrances to growth in 2010 include highunemployment and fragile economic growth in advanced countries, volatile oil prices, security

threats and increased travel costs.

Improvements in tourism arrival figures in the Virgin Islands began in the last quarter of 2009and are expected to continue into 2010. As the US economy recovers further the contribution oftourism to the Territorys GDP should increase and tourism arrival figures for 2010 should behigher than 2009 although they might not reach pre-crisis levels. This will improve occupancyrates and employment prospects within the sectors. Exponential growth however, within the


16/18

tourism sector cannot be realized unless there is increased access to the Territory, investment intourism infrastructure and aggressive marketing efforts.

Financial Services

The financial services industry will continue to be a significant driver of economic growth in

2010 although the global downturn has taken a toll on the sector. Incorporation figures didimprove in the 4th quarter of 2009 and with the recovery of the Asian economies and theincreased demand for corporate structures to facilitate growth and expansion incorporationfigures should increase above the record low of 2009. The continued scrutiny of offshorefinancial centres may affect the long-term growth of the sector.

Construction

The lull in the construction industry is likely to continue into 2010 both on the public and privatesector side. The commencement of the Terminal Building in West End, the construction of thenew sewerage system for East End and Road Town and the recommencement of the new hospital

project should provide some stimulus to the construction sector especially in terms of jobs in2010. The revival of private sector infrastructural development will depend on the recovery oftourism and financial services industry and the increased demand for hotels, apartments andoffice buildings.

The recovery of the real estate market, including the residential and commercial rental marketsdepends primarily on the strength of the Virgin Islands economy in 2010 driven mainly by thetourism and financial services industries in 2010.


17/18

SUMMARY STATISTICS

Table 1: GDP Estimates by Economic Activity (2006-2009)GROSS DOMESTIC PRODUCT BY ECONOMIC ACTIVITY

(At current market prices $000)

Economic Activity 2006e

2007e

2008e

2009e

Agriculture, Hunting & Forestry 4,100 4,102 4,100 4,096

Fishing 5,393 5,396 5,394 5,389

Mining and Quarrying 360 360 360 360

Manufacturing 27,229 27,245 27,234 27,207

Electricity, Gas and Water 17,774 18,713 18,817 19,586

Construction 50,488 78,478 70,840 62,783

Wholesale and Retail Trade 132,475 137,776 134,740 115,418

Hotel and Restaurant 139,955 143,889 142,456 117,725

Transport and Communications 112,453 116,284 114,423 96,287

Financial Intermediation 58,783 61,955 49,643 38,189

Real Estate, Renting & Business Activity 284,944 298,468 289,636 253,568Government Services 61,608 67,561 70,433 68,394

Education 24,563 26,936 28,081 27,268

Health & Social Work 17,011 18,655 19,447 18,884

Other Community, Social & Personal Services 21,836 21,849 21,840 21,819

Import Duty 33,298 36,128 36,990 32,092

Less: FISIM (49,798) (52,703) (42,405) (32,756)

GDP at Current Market Prices ($000) 942,473 1,011,093 9 92,030 876,310

Actual Change ($000) 72,521 68,620 (19,063) (115,720)

Annual Rate of Growth (%) 8.3 7.3 (1.9) (11.7)

Table 2: Consumer Price Index (2006-2009)

CONSUMER PRICE INDEX

(March 1995=100)

2006 2007 2008 2009

Food Beverage & Tobacco 132.0 138.2 155.6 165.1

Housing 138.6 141.7 148.3 152.1

Furniture & Household Supplies 155.9 155.9 156.0 156.8

Clothing & Footwear 119.7 118.2 130.5 136.2

Transportation 149.4 157.1 173.4 165.6Services 161.5 167.3 172.1 185.3

Miscellenous 136.1 136.2 146.2 144.6

All Index 139.4 142.9 153.7 158.2

Annual Inflation Rate: 2.7 2.5 7.5 3.0


18/18

Table 3: 2009 Tourism Arrivals

Tourism Summary of Arrivals by Category for 2009

Month/Category Cruiseship Overnight Daytrippers TOTALAccumulated

Total

January 98,263 29,514 2,129 129,906 129,906February 86,691 27,080 1,611 115,382 245,288

March 80,416 33,880 1,793 116,090 361,377

April 63,362 34,230 1,852 99,444 460,821

May 13,954 28,034 1,965 43,953 504,774

June 6,087 27,350 1,352 34,789 539,563

July 6,292 32,331 1,396 40,019 579,582

August 6,291 17,849 2,179 26,319 605,901

September 5,365 8,195 589 14,149 620,050

October 19,816 15,137 611 35,564 655,614

November 63,005 24,382 860 88,247 743,861

December 80,785 30,811 1,406 113,002 856,863

TOTAL 530,327 308,793 17,744 856,863

Table 4: 2008 Tourism Arrivals

Tourism Summary of Arrivals by Category for 2008

Month/Category Cruiseship Overnight Daytrippers TOTALAccumulated

Total

January 111,838 34,221 1,768 147,827 147,827

February 85,776 35,355 1,394 122,525 270,352

March 98,338 45,103 1,211 144,652 415,004April 55,229 34,302 1,052 90,583 505,587

May 21,354 32,713 934 55,001 560,588

June 12,149 31,469 721 44,339 604,927

July 13,583 34,805 846 49,234 654,161

August 6,198 20,917 936 28,051 682,212

September 6,712 7,949 1,183 15,844 698,056

October 14,758 14,209 2,093 31,060 729,116

November 46,344 23,125 2,333 71,802 800,918

December 99,470 31,866 2,014 133,350 934,268

TOTAL 571,749 346,034 16,485 934,268

economic review 2009

Documents