Financial services and construction set to boost Cayman’s economy


The government believes that financial services and construction are the main drivers that will push the Caymans through the recovery, along with a re-emerging tourism sector.

The forecast for the Cayman economy included in the government’s budget documents is set against the backdrop of an improving global macroeconomic environment.

Global economic activity is expected to grow at a rate of 5.9% in 2021 before decelerating to an increase of 4.9% and 3.6% in 2022 and 2023, respectively.

In the United States, a key Cayman market, the economy is expected to grow 6% in 2021 and on average 3.7% between 2022 and 2023.

In contrast, the Cayman’s economy is expected to recover 1.2% in 2021, following an economic contraction of 6.7% last year, according to government estimates.

The national economy is expected to accelerate by 5% in 2022 and on average by 3.2% per year from 2023 to 2025.

The hotel industry and transport continue to decline in 2021

Last year, the widespread decline was only partially mitigated by a strong construction industry as well as expanding activity in the health and government sectors.

This year’s growth has been driven by financial services, as well as construction, retail and utilities, while the hotel and restaurant and transportation sectors have continued to contract.

Business services are expected to grow by an estimated 3.7% this year, reflected in part by a sharp increase in registrations of new companies and partnerships. It will be followed by an average annual growth of 2.2% until 2025, according to the budget forecasts.

The construction sector should also be buoyant in the medium term, supported by large-scale apartment and hotel complex projects.

This year and next, the NCB Hilton hotel, the Hyatt hotel on Pageant Beach, the launch of the Mandarin hotel in Beach Bay and the Indigo hotel are some of the major developments.

In addition, the government is funding the works of John Gray High School and the construction of a mental health facility, and continued road expansions are also expected to contribute to growth in the medium term.

Overall, the construction sector is expected to grow 9.4% this year.

In the first half of 2021, indicators of construction activity such as imports of cement and aggregates increased by 64.8% and 36.7% respectively. Over the next four years, the construction industry is expected to grow by 5.3% per year on average.

The government expects the hospitality industry to contract 88% in 2021 but partially recover with an average annual growth of 224.9% per year between 2022 and 2025.

The rebound in tourism will eventually give an additional boost to the wholesale and retail sector, which is expected to increase by 2.2% in 2021 and by 3.7% on average between 2022 and 2025.

Economic risks

The risk factors for the construction sector, mentioned in the budget documents, are that the pace of construction of some hotel projects could be affected by the lingering uncertainty in the tourism sector as the government continues to adopt an approach. cautious to reopen the sector, the budget documents said.

The Cayman’s financial services industry, on the other hand, continues to face increased risk due to changes in regulatory requirements from international regulatory and political organizations. “Notably, the Cayman’s demand for financial services could be affected by keeping the islands on the FATF gray list and continuing discussions on increasing economic substance requirements on the part of the European Union,” said the FATF. estimated budget.

Regarding the global economic environment, the budget forecast noted that the success of immunization programs around the world has reduced the uncertainty of global demand as most countries gradually resume their routine economic activities.

However, the recent discovery of the omicron variant of the coronavirus has reintroduced new uncertainty and new lockdowns and travel restrictions are reappearing.

The OECD warned last week that a worsening health situation from COVID-19 would lead to new restrictions that would jeopardize the recovery.

The organization said ensuring better access to vaccines for all must be an urgent political priority, not only to save lives and prevent the emergence of new variants, but also to help remove some of the bottlenecks that undermine the strength of the recovery by allowing factories, ports and borders to reopen completely.

A potential sharp slowdown in China, if activity in the real estate market were to decline sharply amid concerns over the financial strength of some of the biggest real estate developers, could also disrupt the global recovery. “The impact of such a slowdown would spread quickly to other countries, especially if it created uncertainty in global financial markets and added to current bottlenecks,” said the OECD .

Unemployment is expected to drop

The demand for labor is expected to follow the government’s GDP growth forecast.

While in 2020 total employment decreased by 12.1% and the labor force decreased by 10.5% to 41, the unemployment rate increased to 5.2%.

The government believes that the continued closure of the tourism industry will further restructure the local labor market as companies are forced to recalibrate their business models.

Given the increased employment opportunities resulting from planned construction projects and a government policy to prioritize the integration of displaced Caymanians into the workforce, the unemployment rate is expected to be 5% of the labor force in 2021, before improving to 4.4% in 2022 and to an average of 3.6% over the following three years.

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