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The early release of the island’s 2023 GDP figures is helpful in understanding the local economy, and it is encouraging that there have been no significant revisions to the 2021 and 2022 figures. However, most of the good news stops there.
Guernsey’s economy declined by 2% in real terms in 2023, marking the first decline since the start of the pandemic. The economy is now only 0.6% larger than in 2019, with minimal growth since 2017.
If the first estimates are correct, both the UK and Jersey economies outperformed Guernsey in 2023. The UK economy grew by 0.1% compared to 2022 and by 2.1% compared to 2019. Meanwhile, Jersey's economy has picked up since the pandemic, with forecasts suggesting 5% growth over 2019 levels. Jersey's next GDP figures are expected in early October.
Guernsey’s GDP per capita decreased by 3%, indicating a drop in productivity as the population grew by 1%, while real GDP fell by 2%. GDP per capita is now lower than in 2017, highlighting the erosion of living standards due to high inflation.
Employee compensation and company profits remained stable at 50% and 36% of GDP, respectively. However, employee compensation grew by 1% in real terms, while company profits dropped by 6%. This increase in compensation could boost consumer spending, but weaker company profits may limit business investment.
The report underscores the continued dominance of finance and professional services, which together account for 47% of the island’s GDP. However, GDP from this sector fell by 3%, largely due to an 11% contraction in Banking and a 2% decline in Fiduciary services. Unlike other economies, Guernsey did not benefit from the expected boost in banking GDP due to higher interest rates, suggesting that consolidation in the sector is reducing economic activity.
On a positive note, the Funds and Insurance sub-sectors grew by 8% and 17%, respectively. Other important sectors showed mixed results, with Construction contracting by 7%, Retail remaining flat, and Public Administration growing by 2%, including a 1% improvement in productivity. Smaller sectors like transport, health, arts, and hospitality also showed growth.
Although Guernsey’s economy was less affected by the 2007-08 financial crisis compared to Jersey, their growth trajectories have diverged since 2019. Jersey has reported 5% real growth since 2019, compared to just 0.6% for Guernsey. To close this gap, Guernsey must focus on pro-growth policies, similar to those of the new UK Labour government. Key areas include supporting the Finance sector, infrastructure investment, enterprise, housing, skills development, labour force participation, and connectivity. Recent initiatives on housing and the Guernsey Enterprise Investment Scheme are welcome steps, but they must be effectively implemented. However, growth is likely to remain subdued in 2024 due to high interest rates, persistent inflation, and ongoing geopolitical risks.
Richard Hemans Lead on economic matters for the IoD Guernsey Branch
