ECLAC: Economic growth subdued in the Caribbean

The United Nations Economic Commission for Latin America and the Caribbean predicts in its annual report that this year’s economic growth in the Caribbean region will remain unchanged at 1.4% amid the impact of fiscal austerity measures and a wider lack of investor confidence.

Goods-producing economies are seeing a slight uptick from 0.8% in 2018 to 1.2% this year, whereas service-producing economies declined marginally to 1.7% from 1.8% last year.

The three fastest growing economies for 2019 were Dominica (9.0%), Anguilla (6.3%) and Antigua and Barbuda (6.2%), as rebuilding efforts of the hurricane-affected islands intensified and tourism recovered. Higher foreign direct investments and public sector spending also supported economic growth.

In its preliminary overview of the Caribbean, ECLAC expects the marginal growth trend to continue next year. However, forecasts are skewed by the inclusion of economic data for Guyana. ExxonMobil is expected to begin oil production in the South American country this month. As a result, Guyana’s GDP is expected to skyrocket by more than 85% in 2020.

When Guyana is excluded the weighted average real growth in the Caribbean is forecast to fall to 1.5%.

New natural gas projects and public sector investment programmes in Trinidad and Tobago are set to push economic growth to 1.5% up from 0.4% this year.

ECLAC noted downside risks for next year are not only an active hurricane season but also global trends such as continued uncertainty around commodity prices, trade tensions and Brexit.

In the Bahamas, Hurricane Dorian caused US$2.5 billion of damage and losses on the islands of Abaco and Grand Bahama. The impact on the country’s mainstay tourism sector in the two islands is about US$855 million. “The Bahamas needs to frontload investment in risk reduction and resilience to reduce the impact of future disasters,” the commission said.

LatAm: Slowest growth in seven decades

When considered together, the Caribbean and Latin America as a region will see the lowest growth in the last seven decades for the period from 2014 to 2020, ECLAC said.

According to the annual report, the region will grow 0.1% in 2019 and 1.3% in 2020.

The economic deceleration is widespread and synchronised among countries and sectors, topping off six consecutive years of low growth.

Slowing domestic demand, low external aggregate demand and more fragile international financial markets in combination with growing social demands and pressure to reduce inequality and increase social inclusion are characteristics shared by most Latin American countries.

“Given this scenario, the region cannot withstand adjustment policies and needs policies to stimulate growth and reduce inequality. The current conditions require that fiscal policy be centred on the reactivation of growth and on responding to growing social demands,” said Alicia Bárcena, ECLAC’s executive secretary at the presentation of the report in Santiago de Chile, last week.

The report emphasises that an active fiscal policy requires in the medium-to-long term a strategy to ensure its sustainability over time.

This implies that it must be linked to growth capacity and productivity dynamics, and to strengthening the state’s capacity for revenue collection (improving the progressive nature of the tax structure through an increase in direct taxes; reducing tax evasion, which represents around 6.3% of regional GDP; reevaluating tax expenditures, which represent 3.7% of GDP in the region; and implementing a new generation of taxes related to the digital economy, the environment and public health).

The report noted that 23 of 33 Latin American and Caribbean countries – and 18 out of 20 in Latin America – will see lower growth during 2019, while 14 nations will record an expansion of 1% or less.

GDP per capita in the region will have contracted 4.0% between 2014 and 2019.

Meanwhile, national unemployment will rise from 8.0% in 2018 to 8.2% in 2019, which amounts to an increase of one million people, reaching a new maximum of 25.2 million.

This situation is compounded by a deterioration in job quality due to growth in self-employment (which exceeded salaried employment) and in labour informality.

Venezuela, which saw its economy contract 25.5%, Nicaragua (-5.3%), Argentina (-3.0%) and Haiti (-0.7%) are the worst performers and all going through a recession. South America, as a whole, contracted -0.1%, compared with Central America’s GDP growth of 2.4% and the Caribbean’s 1.4%.

On a positive note, most of the region’s countries have historically low inflation levels, relatively high international reserves and access to international financial markets at comparatively low international interest rates.

These conditions favour the capacity to implement macroeconomic policies that would tend to reverse the current low-growth scenario, the report concluded.

“To that end, it is critical to reactivate economic activity through greater public spending on investment and social policies,” ECLAC said. “In addition, to address social demands, short-term redistributive efforts must be complemented with an increase in the provision and quality of public goods and services.”