In its latest set of reports the New York-based agency, which assesses the borrowing credibility of companies and countries, said that Guernsey’s economy would probably shrink by 9% this year, while Jersey’s drop was likely to be 7.5%.
Guernsey is also expected to rack up higher levels of debt, with S&P predicting that borrowing will equal 18% of their gross domestic product [total economy] by the end of 2020.
In Jersey, the expected debt ratio is also forecast to increase but only to 16% of GDP.
Despite the negative forecasts, both islands have retained their credit rating of ‘AA-/A-1+’, meaning they will still be able to take out debt at the same interest rates.
They both also achieved ‘stable’ outlook ratings for their economies.
Recent comparisons of how the two islands have handled the Covid-19 crisis have often favoured Guernsey due to its early elimination of the virus and decision to keep its borders closed to prevent re-infection.
But Jersey’s government has been more keen to return to ‘business as usual’ and opened its borders on 3 July with the aim of boosting the economy.
S&P’s report on Guernsey says: ‘Weakening economic activity due to the Covid-19 outbreak will cause Guernsey’s economy to contract sharply.
‘We also expect sizeable fiscal deficits to lead to a significant ramp up in government debt to 18% of GDP by the end of 2020 from about 10% at the end of 2019.
‘Lower economic activity and a large economic support package will lead to Guernsey posting a record government deficit in 2020, which we estimate at about 7% of GDP.
‘The government nonetheless has significant liquid financial assets, estimated at about 95% of GDP, and low general government debt of less than 20% of GDP.
‘We project that the economy will contract by 9% in 2020, and nominal GDP will return to 2019 levels in early 2022.’
The reports on both islands say that the pandemic will cause ‘economic scarring’ that is likely to have a ‘multi-year effect on public finances’.
Speaking about Jersey maintaining its credit rating, Treasury Minister Susie Pinel said that the government would maintain a ‘cautious approach to financial planning’ and that ministers remained ‘conscious of the challenges’ faced as a result of the pandemic.
