EXTERNAL TRENDS COULD IMPACT CAYMAN’S ECONOMIC RECOVERY

Encouraging signs for a robust economic bounce back for Cayman, especially with the upcoming winter tourist season, could be constrained by ongoing trends in other parts of the global economy.

Emerging from the COVID-19 pandemic, Cayman has already seen positive signs of regrowth evidenced in the scale of imports as reported by the Economics and Statistics Office(ESO).

IMPORTS UP

In its latest report, the ESO states “the total value of merchandise imports increased for the second quarter of 2022 as the economy showed continued growth.

Imports for the second quarter stood at $387.56 million, an increase of 25.2 per cent, resulting from higher imports of both non-petroleum and petroleum & petroleum-related products by 14.9 per cent and 113.1 per cent, respectively.”

 According to the ESO, there was growth in most categories of imports, as food imports grew by 22 per cent with increased importation of meat and meat preparations, vegetables and fruit, eggs, fish and dairy products.”

It also shows that imports of beverages and tobacco grew by 27.5 per cent, and miscellaneous manufactured goods, which include items such as clothing, and jewellery, showed strong growth of 31.6 per cent for the June 2022 period over the previous corresponding quarter.

In contrast, machinery and transport equipment such as road vehicles, office machinery and machinery specialized for particular industries were lower by 1.4 per cent. Additionally, the ESO reports, imports of manufactured goods classified chiefly by materials, such as iron and steel and non-ferrous metals, were lower by 19.9 per cent, despite the growth in paper products and rubber manufactures by 27.6 per cent and 7.9 per cent, respectively.

The volume of imports is expected to further increase as preparations are made for the upcoming winter season.

INTEREST RATE THREATS

While there are clear economic benefits, there are however signs on the horizon that warrant attention starting with the cost of imports, mainly from the US due to the spiralling strength of the US dollar.

With the Cayman dollar still regarded as one of the world’s strongest and most stable currencies with a fixed exchange rate of $1KYD to $1 US since 1974, this has tended to buffer to some degree the impact of the current surge in the US dollar.

The bulk of Cayman’s imports - including tourism - is from the US.

However, some pressure could be expected from the current volatility in the global; financial markets as the US dollar continues to strengthen.

Recent policy initiatives by the new British government to stimulate their economy have seen the financial markets react negatively, a development not lost on Cayman, a UK overseas territory that’s home to one of the world’s leading offshore financial centres.

Inflationary pressures are underlining the current wave of uncertainty in the markets and the wider global economy.

Interest rate increases are being used by central banks including the US Federal Reserve and the UK’s Bank of England to respond to global as well as specific recessionary threats to their economy.

LOCAL IMPACT

Cayman is not entirely immune from the wider repercussions of those external decisions, an observation made by Caymanian Times publisher - and former banker - Ralph Lewis - in an on interview the programme Business Buzz on Radio Cayman.

Noting that Cayman is the “number one market centre in the region and banking is our number one industry,” the former head of the Cayman Islands Development Bank addressed how changes in interest rates set in the global capitals impact Cayman.

“I understand the banks need to find different ways of increasing their profit and the bottom line in light of the economy, yes, they’re gonna add some fees. And I’ve seen the fees pop up on my statements and I understand the fee structures.”

“However”, he added, “what I’m still to understand or still to accept, is the way the interest rates have been increased. Right now we’re seeing some banks increase them the same day that the Feds(US Federal Reserve) increase it in the US, and some are delaying for one month.”

According to Mr Lewis, “There needs to be some consistency in how that’s done.”

Furthermore, he noted, valid questions are being raised over how interest rates actually work.

“Many people don’t understand how interest rates work, how (they) impact the Cayman Islands and they say, ‘Why is the Cayman Islands increasing the interest rates here when the US increase theirs?’. We understand why the Feds increase theirs because they are trying to control inflation in the US, but is our inflation at that level that we have to increase it here as well?”

At the same time he pointed out, the question is raised about the difference in mortgage and deposit rates “where you’re seeing our deposit interest is so low, but you’ve got a mortgage and it’s now up to over 6%.”

According to Mr Lewis, in the face of the generally encouraging economic outlook, these are important issues which also need to be addressed.