Economic growth is predicted on back of vaccine, virus success

Standard & Poor’s has predicted the island’s economy will see 3.8% growth in 2021, while it expected to see an ‘ambitious’ capital expenditure programme to support activity in the medium term.

‘Strong virus suppression and the vaccine roll-out have set Guernsey on the path to normality, helping economic activity to rebound,’ said the agency in its latest assessment of the States of Guernsey.

‘Following one of the sharpest drops in activity in Guernsey’s history, we project that the economy will rebound by 3.8% in 2021, as paused activity restarts, the vaccine programme reaches its final stages, and stronger external demand supports a recovery.’

S&P estimated a 4.5% contraction in the economy in 2020, with unemployment also falling through 2021. It also took a look ahead for Guernsey – with affirmation of the island’s AA-/A-1+ credit ratings with a stable outlook.

‘Policymakers will remain focused on the final stages of their vaccination programme, which will enable a route out of the health crisis, and allow for an unwinding of the remaining fiscal support, which is now concentrated in the small tourism sector, by early 2022.

‘As pandemic effects begin to fade, we expect a modest fiscal deficit to persist as authorities initiate a broad cap-ex programme in various sectors, including health and education. We expect new long-term debt will be issued to finance this spending, while new tax measures – if successfully passed – will likely complement this.

‘However, Guernsey’s very significant asset pool, which we estimate at 105% of GDP in 2021, will provide an estimated return equivalent to about 5.7% of GDP on average over 2021-2024, more than offsetting the forecast government deficit of 1.8% over the same period, ensuring net debt continues improving throughout.’

Guernsey’s ‘strong and flexible institutions, wealthy economy, and considerable fiscal buffers’ were also highlighted by S&P – although these were offset by external risks to the island’s economy and policymaking framework, and its lack of meaningful monetary flexibility.

‘Managing reputational risks, against a backdrop of rising global regulation of low-tax jurisdictions, is critical to Guernsey’s authorities,’ added the report.

Deputy Mark Helyar, treasury lead on Policy & Resources welcomed the report.

‘The committee is welcoming affirmation from Standard & Poor’s of Guernsey’s AA-/A-1+ credit ratings with a stable outlook,’ he said.

‘S&P has projected that Guernsey’s economy will post a rapid recovery in real GDP of 3.8% in 2021 driven by the reopening of borders and activity, along with vaccination success. Our stability, our still-low levels of debt, and our government liquid assets, which are described as a “key strength” and buffer against economic shocks, mean that there is no change in our creditworthiness.’