2020/21 Budget Communication 2020-21 Budget Communication - Final (1)-compresse | Page 7

The threat of COVID-19 is two-fold, given its life threatening public health ramifications, and the
associated economic outcomes. The pandemic has already triggered a downward revision of global
growth prospects for 2020 and into 2021, and no sector has gone untouched. As a service-based
economy, this is of particular importance to The Bahamas, and will undoubtedly change the
landscape for the upcoming 2020/21 fiscal year.
Prior to the outbreak of the coronavirus, global indicators signaled a slowdown in growth, due to
rising trade barriers, geopolitical and trade uncertainty, and macroeconomic strain in a number of
emerging market economies, among other factors. This, compounded by a pandemic, which
practically halted economic activity across the globe, underpinned a severe downturn in projected
global output for 2020. According to the International Monetary Fund’s (IMF) World Economic
Outlook for April 2020, global output is now forecasted to decline by 3.0 percent in 2020, a sharp
turnaround from the 3.4 percent growth estimated in its October 2019 release.
To put this into context, at the time of the Budget Communication last year, global output was
projected to grow by 3.6 percent. In just one year, a lagging trade war, structural factors, fiscal
tightening, and now a global pandemic has caused a 6.6 percentage point reversal in growth
projections for 2020. This is an outcome far worse than the 2008/09 global financial crisis. These
are certainly unchartered waters, not only for The Bahamas, but for the entire world.
Mr. Speaker,
The redeeming characteristic of this bleak and dire outlook is that economic downturns related to
pandemics are usually V-shaped. This means, they begin with stark declines, but are generally
followed by a relatively quick and robust recovery. As such, global growth is projected to rebound
to 5.8 percent in 2021, as a result of policy support measures to underpin the return of economic
activity.
Mr. Speaker,
As our key source market for tourism and primary trading partner, prospects for the United States
(U.S.) are paramount to the fiscal and economic outlook for The Bahamas. Real GDP in the U.S.
is anticipated to contract by 5.9 percent in 2020. Although there has been some relaxation of social
distancing and economic shutdown measures across various states, it will take some time to reverse
the adverse effects of diminished confidence. Nevertheless, the large stimulus package offered by
the U.S. Government and monetary measures taken by the Federal Reserve to expand liquidity are
likely to provide a direct impetus to aggregate demand. These actions are posited to drive
projections for 2021 that show a rebound in real GDP growth to 4.7 percent, but these estimates
remain uncertain. Similarly, the Eurozone area and the countries of the pan-pacific region all
anticipate major economic fallout for the rest of 2020 and beyond.
Mr. Speaker,
All told, prospects for the short- to medium-term reveal sharp contractions, followed by recoveries
in the following year, barring any unforeseen shocks. In this environment, it has been
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