While private sector and government officials agree that the economy is improving beyond the 11.4% drop seen in 2020 due to the pandemic, there’s varying degrees of optimism for 2023.
By Oyaol Ngirairikl
The slight increases seen in tourism numbers and continued military buildup lend to hopeful attitudes, albeit in varied degrees, that 2023 will see improvements in Guam’s economy. The forecasts range from optimism from those in the private sector who’ve tempered their hopes with caution to Gov. Lourdes A. Leon Guerrero’s more positive outlook.
They agree that there continue to be challenges dotting Guam’s economic landscape and a timeline as to when Guam will return to pre-COVID-19 is measured in years.
Leon Guerrero said her administration which is working to address those challenges, is bullish about economic recovery “because our investors are bullish on Guam.”
This is “evidenced by the appetite for the pace of development,” she told the magazine. “DPW entertained nearly five times the volume of permits than in previous years. Jobs are available. Our administration continues to support new industries strategically.”
Ma. Claret M. Ruane, professor of economics at the University of Guam’s School of Business & Public Administration; is taking more of a wait and see approach.
“I want to be excited (about our economy) but I’m cautious,” she told an audience of business sector leaders and elected officials during a presentation at the Guam Chamber of Commerce’s economic forum in on Jan. 12.
“I come here to express my view of the economy … and that is of cautious optimism … I’m hearing (other presenters) to be cautiously optimistic (and) to also know that it will take some time for the economy to recover, which gives a lot of opportunities to think of strategies and plans,” she said, speaking in her private capacity, but as an economist.
Ruane is waiting to see the economic numbers for 2022 from the U.S. Bureau of Economic Analysis that will be released in the fall, she says.
In late December, Ruane released an economic outlook report that showed concerns about the 1.1% growth seen in 2021. She says that seemed to her low considering the billions in federal funds that were given to the government for operations and COVID-19 response, to private citizens for unemployment due to the pandemic and children’s school meals, and to helped businesses keep employees on the payroll, among other help.
Ruane pointed out that the Bureau of Economic Affairs estimate for 2021, which was released November 2022, said, “Real gross domestic product for Guam increased 1.1% in 2021 after decreasing 11.4% in 2020.”
She says that increase, while good, was still “a bit disappointing given an 11.4% decline that left a lot of room for improvement, especially considering the $2 billion in federal pandemic assistance.
“Everybody knows this information, 2019 was the peak. And too bad that that was interrupted by the pandemic …,” she said. “I thought we had done better than a 1.1% … We’re still 10% below where we were in 2019 during the pre-pandemic period.”
During her presentation, she said it’s the business owners and managers in the room who might be best able to answer the question of the amount of time it will take to climb out of the economic pit COVID-19 had sunk Guam into.
“You are the group that should (answer the question),” she said. “The private sector is the group that suffered the most during the pandemic.”
Ruane said a what Guam does not need now is a “stable” which describes an economy that doesn’t change year after year. “Basically, a zero-growth economy,” she said, which is where Guam was prior to 2019. She said 2019, the pre-pandemic reference point of growth of 2.6%, is going to be a “tough one to replicate” and higher than the average of 1.2%.
The governor said there are hurdles that could limit the island’s recovery.
“Where our challenges lie continue to be keeping up with technology, the expectations of the new generations of workers, making the island safe, and doing whatever we can right here to keep costs down, such as the power bill assistance and the liquid fuel tax moratorium,” she said.
Leon Guerrero is not the only one concerned about Guam being prepared, or worried about crime, as businesses and hotels prepare for what is hopefully a substantial increase in tourism numbers. (See Story on Crime)
Catherine S. Castro, president of the Guam Chamber of Commerce; said COVID-19 also changed how people travel and it seemed to her that at least some travelers might prefer to have touchless options for things like room keys, which helps reduce the spread of the virus but also can add convenience.
Guam Visitors Bureau Vice President Gerald S.A. Perez, vice president of the Guam Visitor’s bureau acknowledged there’s work to do to ensure Guam is ready for tourists whose expectations have changed. Guam is “lagging far behind” the expectations of source markets.
He said GVB is forecasting for 2023 tourism numbers to reach about 670,000, which is 41% of the pre-COVID-19 OR 2019 levels. Further, GVB anticipates that if the trend continues as forecasted, tourism numbers could reach 1.1 million in fiscal 2024. That’s 70% of pre-COVID-19 numbers.
Following COVID-19, tourists appreciate touchless keys and other conveniences that aren’t widely available today. Perez said Guam needs to move on upgrading digitized capacity, getting contactless payments, mobile hotel check-ins and online concierge services.
The governor said one of the challenges this past year included the inflated cost of goods.
The increased costs followed “a culmination of the unprecedented amounts of money flowing into the economy, an interrupted supply chain, and global events,” she said.
Guam and other states and territories could see some prices adjust, she said. “In response (to inflation), the Fed is expected to raise rates through the 3rd quarter of 2023 and thereby hedging inflation.”
Another challenge Guam residents have faced, due to the shortage of skilled workers, is the lack of sufficient housing. Siska S. Hutapea, founder and president of Cornerstone Valuation Guam Inc.; said that is due to “limited availability of construction companies (and labor) increasing materials costs, supply chain disruption, tedious permitting (and) with interest rates hike more households are becoming renters.”
She said the limited supply and interest rates being “much higher than it was in early 2022,” building a new home “may provide immediate equity, but there aren’t many contractors available to build.” She said one option is to use an Adjustable-Rate Mortgage to alleviate the impact of high-fixed interest rates. Additionally, a first-time home buyer can always purchase an affordable condominium unit to enter the market.
Residential homes aren’t the only buildings that are limited in supply or impacted by high interest rates, Hutapea said. (See Economic Outlook on Page 4)
“We foresee owner occupant commercial sales and some hotel sales in 2023, but supply is limited,” she said. “Tourism needs to come back to spur our economic activity. Thankfully the construction sector associated with military buildup have been filling up the gap somehow.”
Leon Guerrero said she’s requested and has been engaging officials with the U.S. Department of Interior, the State Department, and Congressional leaders regarding expanding the Low-Income Housing Tax Credits for Guam as an incentive for the construction of affordable housing and to stabilize critical housing shortages.
As part of the LIHTC, homebuilders and renters can anticipate initiatives at the Guam Housing and Urban Renewal Authority that will increase rental housing inventory and make units available at subsidized or reduced rent. Slated for completion are160 LIHTC units, which will provide subsidized rent through a developer subsidy of tax credits, increase the inventory of rental housing for the vulnerable, such as the homeless, domestic violence victims, veterans and others, provide direct assistance to first-time homebuyers, which is a revamp of an existing program; and provide subsidies to developers of housing for low/moderate income buyers.
Leon Guerrero also said the work in diversification is reaping benefits in apprenticeship programs and more businesses are utilizing incubator services and start-up support organizations like Guam Unique Merchandize & Art and the Guam Economic Development Authority has seen high numbers of businesses looking to establish in Guam, outside of tourism. “These activities in 2022 are highly evident in the changing landscape of the economy,” she said.
Guam Department of Labor Bureau of Statistics show Guam’s labor market “is on a steady path to recovery.” The unemployment rate, as of September 2022 dropped to 4.4%, which is a decrease of 0.4% from June 2022. In addition, according to the latest Unemployment Situation report, the total number of persons unemployed in September 2022 was 3,130, a substantial decrease of 2,530 from September 2021.
People are earning more and working more hours, according to the September 2022 Current Employment Report, indicating further recovery in the job market. More improvements were also seen in the September 2022 Current Employment Report in the number of jobs recorded, which increased to 64,540, up by 2,070 from the previous quarter, and 2,780 from the previous year. The construction industry gained the most jobs at 1,690 from the previous year. Hotels added 620 jobs, and Transportation and Public Utilities increased by 200 jobs.
“Substantial increases in tourist arrivals from Korea and Japan subsequent to their respective governments easing travel restrictions have contributed to recent and significant expansion in Guam’s economy, Gary Hiles, chief economist at the Guam Department of Labor; said at the Chamber forum.
In addition to the recent economic boost from tourism, continuing increases in construction activity, both civilian- and defense-related, provide further stimulus to economic expansion,” he said. “The outlook for these expansionary trends continuing is very positive based on a variety of leading indicators including defense appropriations, construction contracts, increased airline capacity and tourist arrival forecasts.”
It’s also important to build up the local pool of skilled workers, Castro told forum attendees, as there have been many people with skills and abilities who have left island in search of better opportunities for themselves and their families.
“What other jobs … are needed and how can we get folks interested in those jobs or what career or opportunities are there for entrepreneurship? We don’t want to lose our people, that’s a reality. I wish I knew how many we’ve lost. If I know people and you know people (who have left island) it’s probably a significant number of people who’ve left and taken their talents outside of Guam,” she said.