Slowing Air Arrivals to Reinforce Economic Slowdown in the Bahamas

• The Bahamas' economy maintained its momentum in the first quarter of 2026 (Q1 2026), but the underlying data reinforce the view that growth is settling into a slower trend. According to the Central Bank, construction activity continued to support output through a pipeline of tourism and energy infrastructure projects, while private sector credit expanded by 0.8% in the quarter.
• However, economic indicators are converging toward their medium-to-long-term potential following the exceptional post-pandemic rebound that averaged 8.7% annually between 2021 and 2024, and the external environment has become less supportive since the onset of the Strait of Hormuz closure.
• The composition of Q1 tourism arrivals illustrates why the headline growth figures can be misleading. Total visitor arrivals grew by 17.5% to 3.8 million, but this was driven almost entirely by a 19.6% surge in cruise visitors, who account for 87% of arrivals by volume but only around 10% of tourism expenditure.
• Air arrivals, which proxy for the stayover segment that generates roughly 28% of Gross Domestic Product (GDP), grew by just 5.2%, and the United States (U.S.) passenger departures from Nassau airport, the source of over 80% of stayover visitors, fell by 2.6% in Q1.
• April data extend this trend, with U.S. departures falling a further 1.0% year on year (YoY), bringing the year-to-date (YTD) decline to 2.2%. The non-U.S. international segment continues to grow strongly, up 44.2% YTD, but from a small base that is insufficient to offset U.S. weakness, given that American visitors account for the overwhelming majority of stayover spending.
• The Hormuz-driven oil price shock will constrain economic growth through two channels. Higher airline operating costs are feeding into ticket prices, directly raising the cost of travel for US visitors at a time when consumer confidence is already under pressure from broader tariff-related inflation.
• Simultaneously, domestic energy costs are rising, with Bahamas Power and Light fuel surcharges up by as much as 8.8% YoY in Q1, eroding household purchasing power and weighing on private consumption, the largest component of GDP by expenditure. The government's fuel hedging programme will partially offset the upward price impact but cannot fully insulate the economy from these pressures. Furthermore, oil and jet fuel prices will average significantly higher in 2026 than in 2025 despite the June ceasefire.
• Looking ahead to 2027, growth is expected to remain subdued at around 1.7%, as the post-pandemic construction pipeline gradually winds down, hotel capacity constraints continue to limit upside in the high-value stayover segment, and the labour force grows only slowly. This trajectory is consistent with the view that the Bahamas is converging toward a long-run potential growth rate of around 1.7% per year over 2026–2035, well below the rates recorded during the post-pandemic rebound and reflecting the structural constraints of a small, tourism-dependent island economy operating near capacity.

(Source: BMI, A Fitch Solutions Company)