2019 Financial Stability Report

The economic outlook for the ECCU has

Future GDP probability distributions

softened since the last Financial Stability

derived from the Financial Stability Risk

Index suggest a higher near-term tail risk to

Report driven by global developments.

Growth will ease to 3.2 per cent in 2020 and

growth, with the probability of growth

moderate further to 2.2 per cent in 2021.

outturns below 2.0 per cent having risen by

These forecasts are premised on an overall

mid-2020 to approximately 20.0 per cent.

expansion in the construction sector, in

The ECCU financial system is deeply

addition to buoyant tourism activity.

integrated with the real economy,

Figure 1: ECCU Economic Growth Summary 2009-2019 (per cent change)

particularly through the banking sector,

which dominates the financial and economic

0.0 1.0 2.0 3.0 4.0 5.0

landscape in the ECCU.

St Vincent & the Grenadines Saint Lucia

It is, therefore, important to the overall

performance of the ECCU economy that the

St Kitts & Nevis

banking sector continues to operate

(6.0) (5.0) (4.0) (3.0) (2.0) (1.0)

profitably and efficiently for the long term,

Montserrat

as this supports the financing of investments

Grenada

that enhance economic prospects.

Dominica

However, the relationship is symbiotic, in

that the banking sector is heavily exposed to

some sectors of the economy. Problems in

Downside risks to global and ECCU

the domestic economy can weaken the

economic growth have become more

financial system, if the problems cause large

pronounced in recent times. The risks to

loan losses.

the ECCU growth outlook are tilted to the

downside. These risks include the effects of

The banking sector’s largest exposure is

persistent global uncertainty, an escalation

to households, particularly through

in trade protectionism, a no-deal Brexit and

mortgages. There is considerable opacity

weak performance of emerging markets, in

regarding the debt carrying capacity of

particular a sharper slowdown in China.

households. Moreover , many new

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