Caribbean economies grow by 1.9 per cent

By added on 21/07/2011

Alicia Barcena, head of the Economic Commission for Latin America and the Caribbean (ECLAC), said the Caribbean is recovering more slowly than its Latin American neighbours from the global recession, with some parts of the Caribbean lagging others, reports Trinidad & Tobago’s News Day.

Barcena was speaking in Chile on July 13 global launch of the “Economic Survey of Latin America and the Caribbean” for 2010 to 2011 that was televised at ECLAC’s TT office at Chancery Lane, Port-of-Spain.

“For 2011 an expansion of 1.9 per cent is expected for the Caribbean, while the projection for 2012 sees a slight acceleration of growth to 2.6 per cent,” she said. “In both cases the growth rate for the Caribbean is below the regional average.”

Barcena said the global economic crisis had more-severely affected Jamaica and service-based economies such as the Bahamas, Barbados and the Eastern Caribbean, than commodity-producing nations. High public-debt and a limited fiscal-space have led to fiscal consolidation measures, such as tax-hikes and reduced public spending.

“Some countries have asked for support from the IMF (International Monetary Fund) to close their fiscal and external gaps,” she said. “Inflation has risen in the region due to rising fuel and food prices, reaching double-digit levels in some countries. This has posed a challenge to policymakers who are trying to preserve social welfare programmes in the context of limited fiscal space.”

Barcena said both remittances and net foreign direct investment (FDI) flows have returned to the region, but are still below pre-crisis levels.

A Caribbean Factsheet given to reporters at the Chancery Lane event reviewed the past year, from 2009 to 2010. The document split the Caribbean countries into two groups, the More Developed Countries (MDCs) of TT, Jamaican Guyana, Belize, Barbados and Bahamas, and the smaller States of the Eastern Caribbean (ECCUs).

“Driven by elevated export prices, the MDCs reported positive growth of 1.5 per cent in 2010, from a decline of 1.2 per cent in 2009.” The ECCU countries did not yet see growth but did improve their position from a 6.2 per cent decline in 2009 to a smaller contraction of 1.7 per cent in 2010.

Fiscal consolidation saw the ECCU subregion’s average deficit decline from 3.5 per cent of GDP in 2009 to 1.0 per cent of GDP in 2010. The MDCs deficit fell from 4.7 per cent of GDP in 2009 to 3.4 per cent of GDP in 2010.

“Average total public debt for the Caribbean increased from 69.7 per cent of GDP in 2009 to 73.9 per cent of GDP in 2010, as a number of governments borrowed to finance their deficits.”

A boost in exports and fall in imports, a rise in remittances and a rose in foreign direct investment, led the region’s current account deficit to narrow from 14.2 per cent of GDP in 2009 to 10.8 per cent in 2010.

The bad news was a lack of growth led to increasing unemployment in some areas such as St Lucia (20 per cent) Barbados (11 per cent) and Jamaica (12 per cent), although it fell in TT (4.8 per cent). Higher food and oil prices pushed inflation over 2009 to 2010 from 3.1 per cent to 6.3 per cent in the MDCs and from 0.7 per cent in the ECCUs to 2.6 per cent.

Only the ECCU bit not the MDCs had seen a growth in private sector credit from 2009 to 2010.

“The prospects for 2011 are better than 2010 on the assumption that global demand will continue to increase and food and fuel prices will moderate. Growth in the MDCs is projected at 2.7 per cent and in the ECCU at 3.2 per cent, with positive growth expected in all the countries.”

ECLAC made recommendations for the region. Fiscal consolidation must continue, including countries building resilience against external shocks. “A strategy of market and product diversification is essential for sustained growth.” Countries should set up incentive schemes to attract FDI. “The lack of private sector response despite lower interest rates and excess liquidity underlines the need for greater private and public sector partnerships as ways of reducing private risks and making public activity more market-sensitive.”

ECLAC gave reporters a press release, titled, “Latin American and Caribbean growth will be 4.7 per cent in 2011,” which said the Caribbean lags Latin America.

Growth in the economies of the region of Latin America and the Caribbean is expected to slightly contract from 4.7 per cent this year to 4.1 per cent next year, said the statement.

This year, 2011, South America’s economy is growing by 5.1 per cent, Central America by 4.3 per cent and the Caribbean by just 1.9 per cent. “As in previous years, the region has three-tier growth,” said the statement.

South America’s growth was due to higher prices for its commodities.

The best growth in the region is in Panama (8.5 per cent), Argentina (8.3 per cent), Haiti (8.0 per cent), Uruguay (6.8 per cent) and Ecuador (6.4 per cent). Lesser growth rates are Venezuela (4.5 per cent), Brazil (4.0 per cent) and Mexico (4.0 per cent).

“The highest growth rates are in South America which will grow by 5.1 per cent in 2011, on the back of a significant improvement in its terms of trade by virtue of higher prices for its commodity exports, its specialisation,” said the statement. “Meanwhile, Central America will grow by 4.3 per cent and the Caribbean by 1.9 per cent.”

This continued recovery from the global downturn is due to a boost in internal demand.

ECLAC executive secretary, Alicia Barcena, said this growth implies a 3.6 per cent rise in the region’s per capita GDP.

However, she pondered, “How prepared is Latin America and the Caribbean for managing economic growth?” She urged sustained growth with productive employment and equality.

More jobs and better credit have boosted consumption which in turn has increased demand.

“In 2011, regional growth is mainly being driven by private consumption which is attributable to improved labour indicators and increased credit,” said the statement. “At the same time the fact that idle productive capacity is being used up to sustain internal demand is pushing up investment, which is benefitting from greater credit availability to return to pre-crisis levels.”

The statement had its concerns. “Rising international food and fuel prices, in a context of higher internal demand, have given rise to inflationary pressures.”

The region faces challenges due to high commodity prices, high global liquidity and the robustness of some regional economies. “In the current scenario the region’s attractiveness to capital inflows and appreciation pressure on local currencies could be of benefit in the short-term by helping to relieve poverty and bring down food prices. However this situation involves a series of risks and difficulties,” said the statement.

“First, the region becomes vulnerable to speculative capital movements in the quest for short-term gains, and this may create bubbles in the prices of financial assets and property markets.”

Secondly, high international liquidity both pushes down the exchange-rates of local currencies and pushes up commodity prices, which encourages an intensive specialisation in commodity exports and production. “This increases the vulnerability of the region’s economies to external shocks and creates greater investment volatility, thereby negatively affecting the capacity to grow, generate productive employment and reduce inequality.”

ECLAC urged the region to curb currency appreciation and to establish fiscal policies to increase public sector savings. “Finally the report draws attention to uncertainties in the international economy, especially the situation in the US, Europe and Japan, and the eventuality of a deteriorating international environment that limits the growth potential of the region. You should therefore seize the current favourable opportunity to recover the policy space contracted by the crisis.”