Buoyed by Japan’s recovery and the potential expansion of the Korean and China markets, Guam’s economy is on pace to grow by 2 percent next year, according to Joseph Bradley, chief economist and senior vice president at the Bank of Guam.
And the projected economic growth has an additional capacity for expansion if the government of Guam circulates the $550 million in bond money languishing in banks, according David John, president of ASC Trust Corp.
“Growth rate in 2010 was 1.2 percent, because of the recovery of tourism, I think next year we will see 2 percent,” Bradley said.
He noted that as of September, Guam welcomed 1.3 million visitors, which is “our best since 1997; so it looks like [tourism] has improved.”
Bradley, John and Gary Hiles, chief economist at the Bureau of Labor Statistics, spoke Friday at the Guam Chamber of Commerce’s Small Business Management Seminar held at the Guam Marriot Resort Spa, where they presented their assessments of Guam’s economic performance in the past year and projections for the coming years.
Money for nothing
Besides revenues from tourism and construction, John said the local economy has the potential to further grow with half a billion dollars in unused bond monies currently shut out in banks.
“There’s so much money in the banking system but not circulating right now,” John said. “We are a $4 billion economy and you have $558 million of capital that the government has control over and they’re sitting in bank accounts."
These idle resources include the close to $300 million bond series secured by the Guam Power Authority and Guam Waterworks Authority, $67 million hotel occupancy tax and $21 million privilege business tax bond, among others.
“You wouldn’t want to let all that money out all at once because that would create inflation,” John said, suggesting that at least $60 million to $70 million be released at a given time “to get that money moving.”
Japan is Guam’s main market and considering the persistently strong yen that drives Japanese tourism, the island is likely to maintain the level of growth in the hospitality industry, Bradley said.
Although the China visa waiver remains a Holy Grail, Guam is likely to see the growth of this market once the State Department implements the planned acceleration of visitor visa processing for China and Brazil, according Hiles.
The expedited visa processing, as directed by President Obama in January 2012, is part of the U.S. government’s strategy to increase travels to the United States.
“The goal is to expand capacity to adjudicate more than 2.2 million visas by 2013,” Hiles said. “Visas are issued to nearly 90 percent of all Chinese applicants. The number of Guam arrivals from mainland China in 2011 was 7,068 without a visa waiver in effect.”
Also on the upswing are the Korean and Russian markets. Statistics from the Guam Visitors Bureau indicate a more than 600 percent increase in Russia arrivals since the granting of parole in January.
“We can’t just react to this,” John said. “We need to take this opportunity to figure out where we want to go; we have to take this opportunity to upgrade our facilities and personnel.”
Overall, John said, Guam is “in a pretty good spot” compared to other economies.
Guam’s economy is “designed to be resilient” mixed with “a good combination of things going on,” John said. “If we could blend that with a little bit of strategic thinking, then we can take things along the way.”
On the construction side, combined appropriations for defense projects from the U.S. and Japan showed a dramatic fall from $1.2 billion in 2010 to $758 million in 2011 and $176 million in 2012.
John, however, noted that the construction industry has seen a surge in civilian contracts.
Five years ago, he said, 80 percent of the industry’s contracts were for federal construction. “In the last three years, they switched that around,” he said.
Now 80 percent of contracts comprise $1 million to $5 million projects, John said.
“The Guam economy is anticipated to be characterized by continuing stability for fiscal year 2013 with major expansion or contraction,” Hiles said.
“There is the potential for modest expansion as well as exposure to risks which could impair economic performance.”