The outbreak of war in the Middle East disrupted the steady growth momentum that the region enjoyed in 2025, said a recent CIBC report.
One clear impact of the Middle Eastern war on the Caribbean is through inflation. “In 2025 average inflation decelerated to 1.6% y/y in December 2025 from 1.9% y/y one year earlier,” said CIBC economist Tiffany Grosvenor-Drakes in the Caribbean Economic Overview.
Yet that trend will reverse in 2026, said Grosvenor-Drakes. “Economic activity in the Caribbean is projected to continue to advance moderately in 2026 and 2027, accompanied by a modest upturn in inflation, in line with higher energy prices and higher US inflation.” Grosvenor-Drakes warned the economic impact of the war would be worse if the current ceasefire collapses.
“A sustained rise in shipping costs due to war-risk premiums and re-routing, could also raise the cost of food and other imports, intensifying spillovers for regional inflation and growth, with potential adverse implications for fiscal positions.”
Sovereign ratings
2025 generally saw sovereign risk profiles improve across the region, said the report. “Several governments secured sovereign credit rating upgrades including Aruba, The Bahamas, Barbados, Dominican Republic, Jamaica and the Turks and Caicos Islands.” Jamaica’s upgrade was the most surprising, coming in the aftermath of Hurricane Melissa. “Moody’s upgraded Jamaica’s rating from ‘B1’ to ‘Ba3’ with a stable outlook assessing that while the storm weakened short-term metrics, underlying credit fundamentals remained intact.”
Higher energy prices would undermine fiscal positions in the region as governments implement relief measures for domestic energy consumers. Of course, higher energy prices aren’t bad news for everyone in the Caribbean, noted Grosvenor-Drakes.
“In Trinidad and Tobago, medium-term prospects appear more favourable, linked to new [energy] projects expected to become operational in 2027. Also, in February 2026, the US issued new licenses to allow the twin-island republic to pursue oil and gas activities in Venezuela, following the revocation of previous licenses in April 2025.”
Tourism is another key driver for the region’s economy. “Latest available year-to-date data indicate a broadly positive performance across most territories, but arrivals to Jamaica diverged, collapsing 31.4% y/y at February 2026,” said Grosvenor-Drakes.
Tourism was also boosted by economic growth in the US, which is the Caribbean’s largest source market. Grosvenor-Drakes notes that US real GDP growth for this year was revised downward by the IMF “but is still projected to pick up pace from 2.1% in 2025 to 2.3% in 2026”.
Related Videos
