• The Bahamian economy will grow at a weaker pace than the Caribbean average of 3.1% over Fitch Solution’s 10-year forecast period.
• Bahamas' real GDP will grow by 4.4% in 2023, from an estimated 14.4% growth in 2022, driven by growing output in all GDP components. In particular, private consumption will grow by 4.0% in 2023, from an estimated 7.7% expansion in 2022. Investment will grow by 3.0%, and government consumption will grow by 0.5%, compared with an estimated 9.7% contraction and an estimated 19.0% expansion in 2022, respectively. Net exports will add 1.4 percentage points (pp) to real GDP in 2023 after adding an estimated 10.8 pp in 2022.
• Additionally, economic activity in 2024 will be driven by growing private consumption, net exports, and investment, prompting the Bahamas' real GDP to grow by 1.8% in 2024 from a 4.4% expansion in 2023. Private consumption will increase by 2.0% in 2024, on par with its 2.9% average growth since 2013. Investment will grow by 1.5% in 2024, from a 3.0% growth in 2023. Government consumption will decline by 1.0% in 2024, from 0.5% growth in 2023. Net exports will add 0.4pp to real GDP in 2024, after adding 1.4pp in 2023.
• Through to 2032, private consumption will drive average real GDP growth of 2.5%. Fitch expects private consumption, which accounted for 68.2% of GDP in 2022, to average 2.1% growth from 2023 to 2032. Net exports, investment, and government consumption increases over the same period will support overall economic activity.
• On the fiscal side, the market's fiscal accounts have remained in deficit in recent years, and Fitch estimates that the fiscal deficit will come in at 0.8% of GDP in FY2023 (July 2022-June 2023) from an estimated deficit of 5.8% of GDP in FY2022. Revenues contracted by an estimated 7.8% in FY23 after a 36.7% increase in FY22. Expenditure fell by an estimated 24.5% in FY23 after a 2.6% increase in FY22. Consequently, Fitch expects that the debt-to-GDP ratio will decrease to an estimated 85.0% of GDP in FY23 from 87.2% of GDP in FY22.

(Source: Fitch Solutions)

• The Bank of Mexico maintained its benchmark interest rate at 11.25% on Thursday, August 10, in line with analysts' forecasts, underscoring that the inflationary outlook remains "very complex" and suggesting the rate could hold steady for a while.
• The unanimous decision by the central bank's five-member board is the third consecutive rate hold since Banxico, as the Bank of Mexico is known, halted a two-year hiking cycle in May amid easing inflation.
• While falling inflation has elicited rate cuts elsewhere in Latin America, Banxico has taken a more cautious approach as inflation in Latin America's second-largest economy remains above the bank's official target of 3%, plus or minus a percentage point.
• "In order to achieve an orderly and sustained convergence of headline inflation to the 3% target, the board considers that it will be necessary to maintain the reference rate at its current level for an extended period," the bank said in a statement.
• Rate cuts in Mexico are unlikely until late 2023, analysts say, even as central banks begin easing their monetary policy. Notably, annual inflation in Mexico slowed for the sixth consecutive month in July, official data showed, landing at 4.79%, but still above the central bank's target.
• While Banxico expects inflation to converge to its 3% target late next year, it said the inflationary outlook will be complicated and uncertain throughout the entire forecast horizon, with upward risks. In recent weeks, central banks in Brazil, Chile, Costa Rica, and Uruguay have cut their interest rates after aggressive monetary tightening cycles.

(Source: Reuters)

• Swiss bank UBS agreed to pay a combined $1.4 billion in civil penalties over fraud and misconduct in its offering of residential mortgage-backed securities dating back to the global financial crisis, federal prosecutors announced Monday.
• The settlement concludes the final case brought by the U.S. Department of Justice against several of the largest financial institutions over misleading statements made to the purchasers of those mortgage-backed securities. The cumulative recoveries in the cases now total $36 billion, according to the Justice Department.
• In the years leading up to the financial crisis, investment banks packaged, securitized and sold bundles of mortgages to institutional buyers. Those securities were rated and graded according to quality, with various “tranches” of mortgages hypothetically safeguarding against the risk of a complete default.
• However, unbeknownst to the buyers, those mortgages were not as high quality as their ratings suggested. UBS, similar to other banks that settled with the Justice Department, were aware that the mortgages underneath the mortgage-backed securities didn’t comply with underwriting standards.
• UBS conducted “extensive” due diligence on the underlying loans before it created and sold the securities to its clients, prosecutors alleged, and despite knowing of the significant issues with the products, continued to sell them for financial success.

(Source: CNBC)

• Swiss bank UBS agreed to pay a combined $1.4 billion in civil penalties over fraud and misconduct in its offering of residential mortgage-backed securities dating back to the global financial crisis, federal prosecutors announced Monday.
• The settlement concludes the final case brought by the U.S. Department of Justice against several of the largest financial institutions over misleading statements made to the purchasers of those mortgage-backed securities. The cumulative recoveries in the cases now total $36 billion, according to the Justice Department.
• In the years leading up to the financial crisis, investment banks packaged, securitized and sold bundles of mortgages to institutional buyers. Those securities were rated and graded according to quality, with various “tranches” of mortgages hypothetically safeguarding against the risk of a complete default.
• However, unbeknownst to the buyers, those mortgages were not as high quality as their ratings suggested. UBS, similar to other banks that settled with the Justice Department, were aware that the mortgages underneath the mortgage-backed securities didn’t comply with underwriting standards.
• UBS conducted “extensive” due diligence on the underlying loans before it created and sold the securities to its clients, prosecutors alleged, and despite knowing of the significant issues with the products, continued to sell them for financial success.

(Source: CNBC)

• The U.S. dollar hit more than a one-month high on Monday as investors sought a safe haven due to concerns about China's economy, and traders braced for possible Japanese government intervention after the yen hit its lowest level since November.
• A source told Reuters that Country Garden, China's largest private developer, is seeking to delay payment on a private onshore bond for the first time, in a new sign of stress in the sector.
• Meanwhile, two Chinese listed companies said at the weekend they had not received payment on maturing investment products from asset manager Zhongrong International Trust Co.
• "A lot of traders are focusing again on China," said Edward Moya, senior market analyst at OANDA. "I think there's so much concern with just their growth outlook, with their current property crisis, and I think one of the biggest wealth managers not being able to meet their debt obligations is a big red flag."

(Source: Reuters)

• Key Insurance Company Limited (KEY) recorded a net profit of $9.38Mn for the quarter that ended June 30, 2023, marking a 5.8% decline in profitability. On the other hand, net profit for the six months ended June 30, 2023, was up 5.4% to $12.91Mn.
• In Q2 2023, KEY witnessed a 24.4% increase in insurance revenue compared to the corresponding period in 2022. Additionally, H1 2023 revenue increased by 22.7% to $238.82Mn. The non-motor segment showed significant strength, outpacing the prior year’s six months by 48.4%. Consequently, its share of revenue grew from 30.0% in 2022 to 36.3%.  Meanwhile, the motor segment, KEY’s backbone, grew by 11.7% over the six months ended 30 June 2022, accounting for 63.7% of insurance revenues.
• Insurance service expenses increased by 11.6% in the quarter ended 30 June 2023 and 13.0% in the six months ended 30 June 2023. The noted increase was largely attributable to the escalation in reinsurance costs as well as increased claims costs in certain segments. Notwithstanding these elevated costs, KEY reported an increased Profit Before Tax (PBT) of 9.5% in the six months ended 30 June 2023 relative to the corresponding period in 2022. The Company remains optimistic and is focused on driving profitable growth in the upcoming quarters.
• KEY’s stock price has decreased by 10.3% since the start of the calendar year. The stock closed Thursday’s trading session at $2.96 and currently trades at a P/E of 29.3x which is above the Main Market Financial Sector Average of 11.8x.
• Going forward, the company anticipates the increases in property rates to continue contributing positively to future results. Targeted measures are being deployed to improve claims results, and these actions are expected to positively impact performance as the year progresses.

(Source: JSE)

• Finance Minister Colm Imbert has confirmed that the Cabinet is actively considering the prospect of raising the minimum wage in the country. Imbert made the statement during a virtual news conference held on August 9.
• The current minimum wage in Trinidad and Tobago stands at $17.50 per hour. However, during the Labour Day celebrations, the Joint Trade Union Movement (JTUM) advocated for an increase to $30 per hour.
• 'We are looking at it (increasing the minimum wage); there has been a proposal,' Imbert said. However, he warned that it is a delicate balancing act as it could directly impact the government's wage bill and the overall economy.
• 'One of the things you have to understand is that in addition to helping people by increasing the minimum wage, that will help people on the lower end, it affects the other side. It has an effect on businesses and then it has an effect on the state sector because in some areas some of the state sector employees are paid at the minimum wage level and therefore anytime you increase the minimum wage the government's wage bill is going to go up so these are the things we have to balance but it is something we are actively looking at again I would say stay tuned for developments on that,' he said.
• Imbert was however tight-lipped on what the new minimum wage could be.
• A rise in Trinidad & Tobago's minimum wage could lead to greater inflationary pressures. Higher wage costs might prompt businesses to increase product prices. Additionally, workers with more income could boost demand for goods, potentially driving up prices if supply does not match demand. The government, too, might have to contend with a larger wage bill, especially if many state employees earn the minimum wage. This could lead to policy shifts, such as reduced spending coupled with new and/or increased taxes, with potential inflationary consequences.

(Source: Trinidad Express Newspaper)

• Guyana will soon be positioned to become a supplier of agrochemicals and the country has already set its sights on a lucrative market in Brazil.
• On Tuesday, August 8, during a bilateral meeting in the Dominican Republic, representatives from Guyana’s private sector signed several Memoranda of Understanding (MoUs); one of the agreements is for the establishment of a petrochemical plant in Guyana.
• President Dr. Irfaan Ali who led the private sector delegation at a conference shortly after the agreement was signed said that once the project comes to fruition, Guyana could supply agrochemicals to its neighbouring country Brazil.
• Agrochemicals are pesticides, herbicides, or fertilisers used for the management of ecosystems in the agriculture sector. Notably, the agrochemical market in Brazil was valued at US $13.5 billion in 2019.
• “Northern Brazil is a high consumer of agrochemicals and they require it from all over the globe. It would take them a very long time for transport and logistics. With an investment like that in Guyana, in 48 hours, we can be in the market,” Ali said.
• According to President Ali, as the two countries continue to solidify their partnerships, the people of the respective nations are set to benefit. “The value creation in these agreements is enormous.” The agreement is set to lead to job creation, particularly in specialized and highly skilled jobs which would lead to higher wages for some citizens.

(Source: Guyana Chronicle)

• The consumer price index rose 3.2% from a year ago in July, a sign that inflation has lost at least some of its grip on the U.S. economy. Prices accelerated a seasonally adjusted 0.2% for the month, in line with the Dow Jones estimate, the Bureau of Labour Statistics (BLS) reported Thursday. Nonetheless, the annual rate was slightly below the 3.3% forecast though higher than in June.
• Excluding volatile food and energy prices, core CPI also increased 0.2% for the month, matching the estimate and equating to a 12-month rate of 4.7%, the lowest since October 2021. The annual rate for the core also was slightly below a Dow Jones consensus estimate of 4.8%.
• Almost all of the monthly inflation increase came from shelter costs, which rose 0.4% and were up 7.7% from a year ago. Food prices also climbed 0.2% on the month, and the BLS said energy costs increased just 0.1% even though crude oil prices surged during the month and prices at the pump jumped as well.
• Used vehicle prices declined 1.3% and medical care services were off 0.4%. Airline fares fell 8.1% on the month, the same as in June, and are down 18.6% from a year ago after surging in the early days of the Covid pandemic.
• Together, the latest batch of data shows that while inflation has come well off its 40-year highs of mid-2022, it is still considerably above the 2% level where the Federal Reserve would like to see it and high enough that cuts in interest rates are unlikely anytime soon.
• The elevated rates have yet to put a dent in economic growth: The first half of 2023 had seen GDP post gains of 2% and 2.4% in the first two quarters, respectively, and the Atlanta Fed is tracking third-quarter growth of 4.1%. Payroll gains have been slowing but are still solid, and unemployment is near its lowest since late 1969.
• With that being said more economists are beginning to expect the U.S. can avoid a recession despite the aggressive rate hikes. Bank of America, Goldman Sachs and JPMorgan Chase all recently have forecast that a contraction is becoming less likely.

(Source: Reuters)

• The European Central Bank is on the back foot again and this time the bad news doesn't come from Greece, Italy or any of the usual suspects in the bloc's poorer south. The club's biggest member and supposed powerhouse, Germany, has been hit by a toxic mix of weak trading with key partner China, a slump in its large manufacturing and construction sectors and even some existential questions about a business model predicated on cheap fuel from Russia.
• Trouble in Germany is hobbling growth in the eurozone as a whole and threatening to push it into a recession, rather than the "soft landing" of moderate growth and inflation that the ECB had pencilled in and the United States is still hopeful of achieving. This is forcing a change of tune at the ECB -- from ruling out a pause in its steepest and longest streak of interest rate hikes to openly talking about one as soon as next month.
• Some of Germany's present misfortunes also originate in Russia, on which Berlin had relied for a third of its energy supply until the invasion of Ukraine jeopardized those cheap imports. Others run deeper and are home-brewed, relating to their over-reliance on exports, lack of investment and shortage of labour.
• Some of Germany’s troubles can be traced back to tighter monetary policy. The central bank has consciously dampened economic activity via higher rates in an attempt to bring inflation, which at one point last year was in double digits, to its 2% target. Higher borrowing costs hurt manufacturers particularly hard because they depend on investment and no euro zone country has a larger industrial sector than Germany.
• "To loosen monetary policy because Germany is in a difficult position would be unwise but to tighten it would add macro pressure to the micro-level pressures that beset the economy," Portes added. This puts the ECB in a situation where it must contemplate wrapping up its tightening cycle before witnessing the sustained drop in core inflation it said it wanted to see.

(Source: Reuters)