Our forecasts still imply that the Cayman Islands are set for an economic slowdown in 2023. Elevated inflation will weigh on real household incomes, denting consumer confidence and thus capping private consumption growth. Inflation came in at 5.9% y-o-y in Q422. Although down from a recent peak of 12.1% y-o-y in Q222, we still forecast inflation to average 4.0% in 2023. This will reflect the still-elevated prices of key commodities owing to the war in Ukraine, and of oil in particular. Oil comprises nearly 90% of the Cayman Islands’ energy consumption, exposing consumers to persistently high prices. Our Oil & Gas team forecasts Brent crude to average USD85/bbl in 2023, down from USD99/bbl in 2022, but still very high compared to historic levels. Volatility in global financial markets will also likely put pressure on government revenues from the financial services sector in the coming quarters.

Growth To Slow Further In 2024

We then see real GDP growth slowing further to 2.1% in 2024, owing to higher base effects and as the economy settles back down towards its longer-term growth trajectory. Gains in the tourism sector will prove harder to come by, with capacity constraints in the sector emerging as arrivals trend closer towards pre-pandemic levels. Ongoing headwinds in the US economy – which provides nearly 80% of Cayman Islands’ arrivals – could also cap further increases in arrivals. We forecast inflation to average 3% in 2024 in the US and for the policy rate to still be high – at 3.75% at end-2024 – which could weigh on incomes and consumer confidence. Cayman Islands is a high-end, luxury tourist destination, and persistent headwinds to the financial situation of US households could prompt holidaymakers to choose cheaper alternatives.