8 FY2022 / 2023 BUDGET COMMUNICATION
3 . Overview of Domestic Economic Conditions and Outlook
Madam Speaker : I now turn to a discussion of recent economic performance and prospects for the Bahamian economy — a discussion which , because of our openness , must be positioned within the context of economic conditions in the global economy .
The International Monetary Fund ( IMF ), in its April 2022 edition of the World Economic Outlook , estimates that real world output recovered by 6.1 % in 2021 , from the 3.1 percent COVID-19 induced contraction in 2020 . This recovery is attributed to travel and social restrictions being relaxed , and an improvement in inoculation rates .
This recovery was broadly-based across the major economies . Real GDP growth for our major trading partner , the United States , expanded by 5.7 percent in 2021 . This followed the decline in 2020 of 3.4 percent , and was accompanied by a reduction in the jobless rate , by 2.5 percentage points , to 5.6 % in 2021 .
Similar factors were behind the favourable performance of The Bahamian economy , which posted an estimated real GDP growth of 13.7 percent in 2021 . This followed a contraction of 23.8 percent in 2020 .
This out-turn was paced by strong gains in tourism , our major export , and benefited from the return of the high value-added stopover market segment — of which approximately 90 percent ( year to date March 2022 ) is from the United States .
Total air arrivals grew by 17.1 percent to approximately 2.1 million , following a 75.2 percent downturn in 2020 .
Although the sea component decreased by 11.8 percent to 1.2 million visitors , this was markedly improved from the 75.4 percent decline in the prior year .
Aside from the leading tourism contribution , economic output also benefited from increased construction investments , linked to a number of varied-scale foreign projects and ongoing post-hurricane Dorian reconstruction works .
Madam Speaker : The world continues to grapple with waves of the COVID-19 pandemic .
New challenges have emerged here , as elsewhere , as we re-establish a positive growth trajectory .
Around the world , inflation is now the main focus of both policymakers and consumers .
Global trade is still being disrupted by issues arising out of the pandemic .
This has led to shortages , supply chain interruptions , and higher prices for imported consumer goods .
These factors , together with high energy prices and geopolitical tensions , have caused a spike in inflationary pressures .
In commodity markets , average prices of crude oil rose by 68.1 percent to $ 71.04 per barrel in 2021 .
According to the United Nations ’ Food and Agriculture Organization ( the FAO ), growth in the overall food price index advanced by 28.1 percent in 2021 , from the 3.2 percent growth in 2020 .
Based on the IMF ’ s World Economic Outlook report , these conditions caused a firming in global inflation to 5.7 % for the advanced economies in 2021 .
In The Bahamas , because of our high dependence on imported goods , we also contended with the harsh reality of less-favourable price conditions .
Reflecting the pass-through effects of high global oil prices and prevailing supply dislocations , average consumer price inflation - as measured by changes in the Retail Price Index - accelerated to 2.9 % in 2021 from a negligible 0.04 % in 2020 .
A key component was the firming in the average per-gallon prices of both gasoline and diesel , by 8.1 percent and by 33.9 percent , to $ 4.39 and $ 4.91 per gallon , respectively .
Which previously declined by 10.9 percent and 15.3 percent .
Madam Speaker : Based on the IMF ’ s projections , high rates of price gains are likely to persist for some time , because of these ongoing adverse impacts .
This is not good news for the global economy , which means that it ’ s not good news for us .
High inflation erodes purchasing power . It reduces the amount of money which businesses and consumers spend .
It also invokes a tightening in macro-economic policy , as observed by recent increases in policy rates in the United States .
This has implications for a slowing in domestic demand and economic growth .
The IMF projects that global output will expand by 3.6 percent in 2022 .
This is lower than the previous year ’ s expansion of 6.1 percent , and reflects adaptive monetary policy measures in the major economies , to address higher global oil prices and impose stringent financial conditions that will no doubt dampen recovery .