Business Monitor Report
We expect Belize's current account to remain in deficit in the coming years, beginning with a 4.4% of GDP shortfall in 2011 and 5.5% in 2012, as we forecast the economy's structural trade deficit to exceed the services surplus in the face of growing global headwinds. While the capital and financial account are likely to remain in surplus, we do not expect this to cover the current account shortfall, leading to moderate reserve depletion.
We forecast Belize's structural trade deficit to continue in the coming years, as the Caribbean nation's import needs continue to outweigh its export capacity. At the same time, we expect the nation's services surplus will shrink in the second half of 2011 and into 2012, as the global economic slowdown sees the country's vital tourism industry suffer from a drop in tourist arrivals from its two key source regions, namely the US and Europe. Therefore, we now forecast a current account deficit of 4.4% of GDP in 2011 and 5.5% in 2012, significantly less optimistic than our previous forecasts for surpluses of 12.4% and 14.9% respectively.
Current Account Dynamics To Create Deficits
In Q211 Belize's trade deficit came in at US$67.4mn, larger than the US$47.4mn deficit in the previous quarter, and in line with the nation's long-term trend of trade deficits. In 2010 the trade balance shortfall was US$348.1mn, and despite the boost received from elevated global commodity prices in the latter months of 2010 and the first half of the 2011, imports continued to exceed exports. Since our Commodity team expect global commodity prices to moderate in 2012 (a trend that has begun since H211) we expect the trade deficit to deteriorate further in coming quarters, forecasting trade deficits of US$270mn in 2011, and US$250mn in 2012.
Although the country's trade deficit has been sufficiently covered by surpluses in the nation's services balance in recent quarters, with surpluses of US$123.2mn and US$75.8mn in Q111 and Q211 respectively, we do not expect this dynamic to continue going forward. While much of the boost received in 2010 (including a US$420mn services surplus) was derived from the improved global economic recovery in the period, growing global headwinds and the global economic slowdown of H211 will, in our view, see this surplus shrink begin to shrink. Indeed, Q111 inflows to travel based services have already begun to slow, contracting by 9.3% y-o-y and 0.2% y-o-y in Q111 and Q211 respectively.
Given the significance of travel based credits to the services balance, we expect the slowdown in the US economy and ongoing problems in the eurozone sovereign debt crisis to keep tourism service activity subdued in coming quarters. Moreover, we forecast deficits in Belize's income balance will continue in the coming years, and although current transfers will remain in surplus, they will not be enough to pull the country's current account out of the red.
Capital And Financial Account Surplus Narrowing
We do not expect Belize's balance of payments position to significantly deteriorate in the coming years, as surpluses in the capital and financial account are likely to cover current account deficits. Meanwhile the nation's strong foreign currency reserves, which stood at US$218mn by end-2010, representing 4.5 months of import cover, should assist in covering the current account deficit if this is not the case. However, we do caution that foreign direct investment (FDI) in the Caribbean nation has continued to decrease in recent years, down to US$195mn in 2010 from US$217.7mn in 2009 and US$339.3mn in 2008. Indeed, capital and financial flows dropped to just US$33mn in 2010, from US$135mn in 2009, and if this trend continues, as we expect it will in 2012 as global investment flows cool, then there is scope for a depletion of international reserve levels, increasing risks to external account stability going forward