Virgin Islands economy rapidly shrinking
Published: August 13, 2013
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ST. CROIX - The territory's economy shrunk significantly in 2011 and 2012, driven primarily by the HOVENSA shutdown and, to a lesser extent, by diminished government spending.
The U.S. Bureau of Economic Analysis on Monday released estimates for the territory's gross domestic product, or GDP for 2011 and 2012, along with accompanying data.
The gross domestic product is a broad measure of economic activity that reflects the value of all the goods and services produced in a given year.
The report shows that the territory's GDP declined by 6.6 percent in 2011 from the previous year, then plunged 13.2 percent in 2012.
The two major drivers in that decline were HOVENSA shuttering its refining operations and the territorial government reining in spending, according to Brian Moyer, deputy director of the U.S. Bureau of Economic Analysis. Moyer and project manager Aya Hamano were in the territory Monday for the release of the data, to detail the GDP results with government officials and the public.
The territory's total estimated GDP for 2011, adjusted for inflation, is $4.351 billion, down 6.6 percent from the $4.66 billion GDP in 2010, according to the bureau's report.
For 2012, the territory's total estimated GDP spiraled even lower, to $3.778 billion. That figure, too, is adjusted for inflation.
In contrast, the GDP adjusted for inflation for the United States, excluding the territories, grew by 1.8 percent in 2011 and grew by 2.8 percent in 2012, according to a statement the Bureau of Economic Analysis released Monday.
The territory's $3.778 billion 2012 GDP is by far the smallest GDP for the territory in the years included in the report, which contains figures going back to 2005. The GDP estimates range from $4.4 billion to $4.8 billion each year since 2005, until the drop to $4.3 billion in 2011 and the descent to $3.778 billion in 2012, according the report.
The No. 1 factor driving the decline in the local economy was the decline in the petroleum refining industry in the territory, which had dominated the Virgin Islands economy for years, Moyer said.
In January 2011, HOVENSA announced it would reduce its production capacity by shutting down a number of processing units on the west side of the refinery in a move to improve financial performance. That reduced petroleum distilling capacity from 500,000 barrels per day to 350,000 barrels per day.
That move also is reflected in the data released Monday, which shows a 17.9 percent drop in exported goods for 2011, Moyer said.
In early 2012, HOVENSA shuttered its refining operation entirely, ending oil refining activity in the territory.
That move is reflected in a precipitous 84.6 percent drop in exported goods from the territory for 2012.
"This is basically the HOVENSA story," Moyer said. "That was the No. 1 driver."
The second factor spurring the economic decline was the government tightening its belt.
"There were a couple of things going on in territorial government," Moyer said.
Those factors included a decline in government spending on construction for both years, as well as the layoffs of government workers and the 8 percent salary reductions.
Territorial government spending declined by 4.1 percent in 2011, and then declined by another 10.5 percent in 2012, according to the report.
The federal government also lowered its spending both years.
The data show that in 2010, the territory's estimated GDP had recovered slightly from a 5.5 percent drop in 2009. In 2010, the GDP grew slightly, by 1.7 percent, before the sharp declines that 2011 and 2012 brought.
Moyer said analysts also took a look at the data, removing the petroleum industry's impact from the equation entirely.
"That's the other thing that we thought was interesting in this story," he said. "If you took out the impact of the petroleum refining industry from the Virgin Islands economy, there would actually have been positive growth in 2012."
Analysts removed petroleum imports, exports and change in petroleum inventories entirely from the data for that analysis.
It showed that without the impact of HOVENSA in 2012, the territory's economy would have grown slightly, by 2.6 percent, he said.
"That primarily reflects exports of rum to the U.S. mainland, which increased over $120 million in 2012," Moyer said.
In early 2012, Diageo began shipping the first rum distilled in the territory to the U.S. mainland for sale.
The tourism sector also showed a decline of 3.4 percent in 2011 and of 2.8 percent in 2012, according to Moyer.
Overall, air and cruise ship passenger arrivals increased over the 2011 to 2012 period, but that was offset by a drop in the average spending per passenger, he said.
The new data include revised estimates for the territory's 2008 to 2010 GDPs, extrapolated from improved source data.
The estimates are developed under the Statistical Improvement Program funded by the Office of Insular Affairs of the U.S. Department of the Interior. The U.S. Bureau of Economic Analyis is part of the U.S. Commerce Department.
The release of the 2011 and 2012 statistics this year reflects a one-year acceleration in the availability of the GDP estimates for the U.S. Virgin Islands, the statement said.
- Contact Joy Blackburn at 714-9145 or email firstname.lastname@example.org.