GUERNSEY’S economy withstood the pandemic much better than Jersey’s, including in the financial services and hospitality sectors, a new independent economic report has found.
Presenting the EY Item Club’s latest assessment for the Channel Islands, chief economic adviser Martin Beck said that Jersey’s economy shrank by 9.2% in 2020, similar to the UK level, while in Guernsey the figure was 3%.
He added that Guernsey’s economy was more likely to recover to pre-pandemic levels more quickly.
Mr Beck said that the damage to Guernsey’s economy was so limited that it was comparable to recent non-pandemic years.
He said: ‘What is striking is just how insulated or relatively well performing Guernsey was. GDP fell by only 3%, whereas Jersey’s drop was the biggest since records began in 1999.
‘For Guernsey you only have to go back to 2012 to find a year where the economy actually did worse than 2020. So, Guernsey’s economic performance was very impressive. Jersey’s was bad, if no worse than the UK’s.’
He said that the difference between the two islands was driven by Guernsey’s much better performance in hospitality and finance.
‘In percentage terms, the biggest damage was seen in the hospitality sector. Jersey’s hospitality sector dropped by 45% in the space of the year, while Guernsey’s was down 33%,’ he said. ‘Equally, it [Guernsey] had longer-lasting travel restrictions, so more domestic spending stayed at home rather than filtering abroad when people went on holiday.’
He added: ‘Financial services accounts for about 40% of GVA/GDP [economic output] in both Jersey and Guernsey and that drove the biggest absolute fall in the economy to both islands.
‘Again, it’s interesting just the extent to which Jersey did worse than Guernsey. Jersey’s financial services output was down about 11% while Guernsey’s was only a drop of 2%.
‘My interpretation there is that Guernsey’s financial sector is less bank-orientated compared to Jersey’s.
‘It’s more focused on things like insurance, and the banking sector during the crisis was particularly hard hit because interest rates were at such a low level.’
The report found that house prices in both islands rose 25% during the pandemic compared to 17% in the UK. Mr Beck said he did not expect to see a ‘major correction’ because the majority of home owners were on fixed-term mortgages.
Looking to the future, Mr Beck said that the islands were less likely to be hit by rising inflation than the UK.
He said: ‘Jersey and Guernsey are plugged into the French nuclear power network, so you are luckily going to avoid that massive rise in energy bills UK households are facing in April.
‘Inflation is certainly going to head higher in the Channel Islands but it’s probably unlikely to reach the kind of 9% or 10% rate that we’re going to see in the UK.’
He added that the islands’ financial services sectors could benefit from rising interest rates.
‘We’re now probably set for a sustained period of higher borrowing costs which could prove to be quite a useful boost to the economic output of the Jersey and Guernsey economy,’ he said.
