Economic Analysis – Slow Growth Amid Crackdown On Tax Havens – AUG 2015

BMI View: Montserrat’s economic growth will slow significantly in the coming years as the key financial services sector faces headwinds from an international crackdown on tax havens in the Caribbean. Additionally, th e end of a government programme of capital investment will also temper the island’s economic activity beginning in 2018 .

Montserrat’s economic growth will continue to slow in the coming years, as the European Union, US and UK move to sanction tax havens. The financial services sector has accounted on average for 10.6% of the island’s annual output since 2000, and a crackdown on tax havens will lead to stagnation in one of the key sectors of the economy. This will also feed through to lower demand for other goods on the island as the high-income jobs brought by the financial services industry leave the country. As such, we forecast that Montserrat’s real GDP growth will slow to 1.5% in 2015, down from 3.7% in 2014. By 2018, we expect the island to enter a recession as a large capital spending programme by the government winds down.

Real estate values and construction activity will be negatively affected by a decline in the financial services sector. These three industries made up 30.2% of the country’s GDP in 2014. As financial services firms exit the island, incomes will decline, as will consumption. Construction activity will slow as demand for new homes declines and real estate output also falls. The EU’s recent inclusion of Montserrat on its tax haven blacklist in June 2015 will further discourage financial services from increasing their business on the island. This decline will gradually occur over the next five years as it will take time for the government to implement its new regulatory platform.