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12 23Fri09192014

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‘Flat economy in 2014’

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GUAM left 2013 with stamps of stable and positive outlook from credit rating agencies, but local economists don’t expect much economic fireworks this year.

Despite substantially high tourism numbers in the past year, Guam economists maintain a conservative projection – for the most part flat, if not modest.

Economists suggest the island’s growth may continue to be tied to the yen economy, which continued to take a tumble before the end of last year. The yen weakened to a five-year low against the dollar in December.

“As the yen continues to depreciate vis-à-vis the dollar, we look more and more expensive from the Japanese perspective, and that is likely to offset most (if not all) of the gains from other visitor sources,” said Joseph Bradley, chief economist of the Bank of Guam.

“You have undoubtedly heard that, if Japan sneezes, we catch a cold; even small external events can loom large here due to the fragile structure of our economy and our heavy reliance on all things external,” he added.

Tourism is Guam’s main economic driver and despite the substantial growth of new markets, particularly Russia – which posted a more than 200 percent increase last year – Japan remains the island’s main market.

“I am expecting Japan's economy to grow fairly quickly this year, and that would usually translate into rising visitor arrivals and (more important) rising visitor spending,” Bradley said.

Double-edged blade

But from Guam’s perspective, the yen’s devaluation is a double-edged blade.

“To the extent that the further weakening of the yen would stimulate the Japanese economy, incomes of Japanese tourists would increase, which would create additional purchasing power for Japanese consumers and encourage visits to Guam,” said Dr. Claret Ruane, associate professor of economics and finance at the University of Guam.

“Our findings suggest that the exchange rate effect would become visible first, as early as two months after another exchange rate adjustment and certainly within the first year of the adjustment,” she added.

Modest growth, if any

While the Calvo administration basks in the positive credit ratings and new investments coming in – such as the serial openings of new restaurants and brand retailers – local economists say Guam will remain a $4 billion economy. If it posts any growth this year, it may not be anything spectacular.

“For the past decade, we've been a little bit up, a little bit down, a little bit up – not much change,” Bradley said. “I have no idea how long it will take the Japanese to view the new pricing regime as being 'normal' so that they can begin spending more here. I suspect it will take a while.  Expect growth to be modest.”

Albert Perez, chief economist at the Bureau of Statistics and Plans, agrees.

“Despite new construction projects lined up for completion along with new tourist markets opening up on Guam, economic growth and inflationary pressures should remain modest in 2014, yet economic growth should be a bit more buoyant the following year,” he said.

Perez said Guam's 2010 real gross domestic product of $4.06 billion, nevertheless, remains the benchmark figure to gauge inroads made thus far by the government in responding to increasing demands on public services and use of financial resources.

Perspective

But the flat growth rate is not exactly something to frown upon, according to Ruane, economist at UOG’s Pacific Center for Economic Initiatives.

“Put in perspective, the Guam economy seems to be stable (to put a positive spin) or stuck (to put a negative spin) at $4 billion a year, with minor fluctuations since 2002,” she said.

“Through good and bad times, we have managed to come out OK so it is safe to say that we are likely to sustain this $4 billion economy in 2014, with very slight variations upward or downward,” Ruane added.

Military realignment

The military realignment, once seen as the salvation for Guam, has since become a footnote in economic analysis due to Washington’s now-it’s-on-now-it’s-off attitude toward the Marines’ relocation from Okinawa to Guam.

The new federal appropriation, with less than $500 million in military construction spending for Guam, may sound promising.

But Bradley noted that the actual projects and associated spending will likely come late in the year, if not in 2015.

“Absent any surge in political tensions in our region, like China attacking one or more of its neighbors, military activity should remain about the same,” he said.

Just the same, Guam keeps track of new developments in the military realignment prospects.

Ruane noted that the latest indication of the likelihood of troop buildup actually happening was U.S. Congress’ approval of $86 million in funding for relocating 4,000 Marines from Okinawa to Guam.

“Some challenges continue with U.S. federal budget deficits and debt and what this means to Guam and political posturing in Congress and in the White House,” she said.

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