Economic experts responsible for advising the government have estimated that Jersey’s economy shrank in 2024 after banking profits “levelled off” – and are now warning that “escalating trade tensions and geopolitical uncertainty” could see inflation rocket again.
In its latest report on the health of the island economy and how it might be affected in future, the Fiscal Policy Panel acknowledged that there have been “shocks to the global economic framework” since the panel’s previous annual report published in September 2024.
Falling bank profits
Staying true to its prediction of a departure from local economic growth driven by banking sector profits over the past two years, the FPP explained in their 23-page document that Jersey’s economy shrank by 1.5% in 2024.
The panel explained that banking profits “appear to have levelled off following the very fast growth in 2022 and 2023 driven by sharply rising interest rates”.
“Falling bank profits, which comprised 20% of total GVA [Gross Value Added] in 2023, is the primary reason for shrinking real GVA,” it stated.
Trump tariff fallout
Noting financial fallout triggered by Trump’s new tariff regime, the FPP also highlighted that global economic forecasts have weakened “due to escalating trade tensions and geopolitical uncertainty”.
It explained that this was “significantly impacting major advanced economies”, including the UK.
“This external environment could negatively affect Jersey through increased import prices, subdued consumer demand, and potential reductions in tourism and financial services activities.”
Describing Jersey’s economic outlook as “broadly consistent with the global tone” the report stressed that “a weaker UK economy and higher uncertainty abroad could drive up inflationary pressures locally”.
“A lasting de-escalation from current tariff rates, along with new trade agreements to provide stability and clarity could cause global growth to rebound, however the balance of risks is downward: growth is slowing, uncertainty is high, and financial vulnerabilities are rising,” the report added.
“While some of the extreme tariff increases announced by the US administration are likely to be scaled back, the overall increase in US tariffs is likely to be very significant and there is likely to be retaliation by a number of jurisdictions,” the FPP’s assessment continued.
“Plan for weaker demand”
“For Jersey, this suggests that policymakers and firms should prepare for a more subdued economic environment, build up capital and liquidity cushions, and plan for weaker demand.”
The island’s most recently published inflation rate was 2.3%.
The panel predicted that “a period of elevated inflation” is forecast for 2025 and 2026, before a return “to more moderate levels” in 2027.
“The living wage, along with agreed increases in the public sector pay award, will cause wage pressure across Jersey’s economy and risks creating more inflationary pressure,” it added.