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Montserrat Economy: Impact of Volcanic Activity

The economy of Montserrat was severely disrupted by the volcanic activity that began in July 1995. Prior to this date, the small island country had an export economy based on agriculture, clothing, electronic parts, and plants, with a per capita gross national product of US$3,000 to 8,000.

The volcanic activity led to the closure of the airport and seaports, causing economic and social dislocation. Two-thirds of the 12,000 inhabitants fled the island, and the agriculture sector continued to be affected by the lack of suitable land for farming. The economy saw a decline, with real GDP dropping from EC$122 million in 1995 to about EC$60 million in 1999, reflecting a large rate of decline.

The volcanic activity had a significant impact on various aspects of the economy, including the destruction of arable land and crops, loss of businesses in the tourist industry, damage to reefs and reduced fish density, and restrictions on fishing areas.

The closure of the airport and seaports led to a decline in economic activity, and the lack of suitable land for farming affected the agriculture sector. The long-term effects of the volcanic activity, such as the destruction of millions of trees, also had implications for the oxygen in the atmosphere.

The prospects for the economy of Montserrat continue to depend largely on developments in relation to the volcanic activity and on public sector construction activity. The impact of the volcanic activity has been enduring, with the economy shifting towards construction and government services as the main economic activities.

The unemployment rate was estimated at 6 percent in 1998, and the domestic financial sector saw a reduction in offshore finance. The volcanic activity has put a damper on this small, open economy, and the consequences of long-term volcanic activity, such as the establishment of an Exclusion Zone, have necessitated significant adjustments in various aspects of life on the island.

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