In its October 2018 Regional Outlook Report for The Caribbean, the wider South America and Central America, the International Monetary Fund (IMF) has predicted strong but yet uneven growth for the Central American and Caribbean region over the next two years.
For the Caribbean and Central American region, the IMF said that recent negative revisions to the effective forecasts hinged on the impact the United States had on their dependent economies with regard to higher tariffs and increased trade costs.
However, due to increased employment prospects in the USA, tourism for the Caribbean is expected to produce an upswing large enough to absorb some of the negative impact from negatively impacting terms of trade from the USA and other larger economies; and for Central America, which is more dependent on remittances, increased job prospects favours well for persons who send US currency back to their respective countries and also particularly as US interest rates continue to rise, making the US dollar stronger against other currencies.
For Central America in particular, the IMF stated that the economic outlook for Mexico, Central America, Panama, and the Dominican Republic is shaped by complex and varying forces, both external and domestic.
While strong growth in the United States is benefiting economies in the region, political and policy uncertainty are moderating growth. In Mexico, despite a preliminary trade deal with the United States, lingering uncertainty on the final agreement and tight financial conditions suggest the economy will recover gradually. Aided by a modest contribution of net exports, growth is projected to reach 2.5 percent in 2019.
Inflation has been on a declining path but remains above target and is projected to reach 4.8 percent on average in 2018 before gradually converging to 3 percent around mid-2019. Regarding policies, the new administration’s strong mandate presents an opportunity to address Mexico’s longstanding structural challenges while maintaining macroeconomic stability and market confidence. Fiscal consolidation efforts would help stabilize public debt as a share of GDP.
The authorities should stand ready to ease monetary policy at the end of this year to support activity if inflation remains firmly on a downward path and as long as inflation expectations remain anchored. Growth in Central America, Panama, and the Dominican Republic (CAPDR) has shown signs of deceleration since the beginning of 2018, driven by worsening terms of trade and subdued domestic demand. At the country level, growth slowed due to a long election cycle (Costa Rica), low business confidence (Costa Rica and Guatemala), low public investment (Honduras), and a prolonged strike in construction (Panama).
After its onset in April, the political crisis in Nicaragua caused economic activity to contract by 12 percent in June (year over year), with sharp declines in tourism, commerce, investment, and exports.
Despite the overall slowdown in the region, growth in the Dominican Republic and El Salvador has accelerated since the start of the year to above potential, supported by persistently robust inflows of remittances and, in the case of the Dominican Republic, the monetary easing in mid-2017.
Intraregional trade in Central America suffered as a result of the political unrest in Nicaragua, as the interruption of land transport increased the logistics costs for imports and exports. Combined with the effect of higher oil prices and falling coffee prices, Guatemala, El Salvador, and Honduras saw their trade deficits widen in the first half of 2018.
For the Caribbean, the IMF had a slightly more upbeat tone and said that economic prospects for the Caribbean are generally improving. Growth in the region is expected to firm up in 2018 and 2019, supported by higher US and global growth.
Reconstruction from the devastating hurricanes of 2017 in some tourism-dependent countries has been largely delayed so far but is expected to pick up in 2019. Rising commodity prices and production are projected to lead to stronger growth for commodity exporters in 2018–19. Several countries in the region have experienced improved economic activity due to greater tourism demand, supported by higher economic growth in the United States – the main market for most destinations in the region.
Most notably, Grenada and St Lucia registered strong growth in 2017 and to date in 2018. Most others, including Jamaica, are experiencing moderate growth. Solid tourism demand is expected to continue in 2019.
However, some of the islands that were hit hard by hurricanes during 2017 face a protracted recovery. In Dominica, GDP is projected to further decline by 14.1 percent in 2018, before rebounding by about 9.4 percent in 2019 as reconstruction gathers pace.
Economic activity in commodity exporters has also improved thanks to higher prices. Trinidad and Tobago is expected to register moderate growth in 2018–19, following two years of recession.
New gold mines have further increased growth prospects in Guyana and Suriname for 2018–19. Guyana is also benefiting from investments in the oil sector, with production expected to start in 2020.
High fiscal deficits and public debt remain major vulnerabilities for the region. However, in some tourism-dependent economies, debt ratios are now retreating from very high levels, with several countries engaged in multiyear fiscal consolidation efforts, including Grenada, Jamaica, and St Kitts and Nevis. In these cases, continued fiscal prudence will be necessary to gradually reduce debt to a sustainable level and to build and preserve buffers against adverse shocks.
In Antigua and Barbuda, there is a clear need to tighten the fiscal stance, in combination with structural reforms to bolster growth, to reduce public debt. A well-designed fiscal rule could help guide the consolidation effort and broaden support for it.
The IMF also highlighted its recent efforts to assist Barbados, having signed a memorandum for stabilisation that it hopes will see a further improvement of Barbados’s fiscal space and overall fiscal improvement for the medium and long term.Caribbean News Now