Sluggish growth forecasted in the Caribbean and Latin America

The International Monetary Fund (IMF) said economic prospects in the Caribbean are improving “with substantial variation across countries”.

Director of the IMF’s Western Hemisphere Department Alejandro Werner said on Monday that “growth in tourism-dependent economies is expected to strengthen to around two per cent in 2019-20, supported by still strong United States growth, the main market for tourism in the region, and continued reconstruction from the 2017 hurricanes”. s

Alejandro Werner, speaking to reporters on Monday (CMC Photo)

In outlining the Regional Economic Outlook Update for Latin America and the Caribbean, Werner said economic activity remains sluggish and real gross domestic product (GDP) is expected to grow by 0.6 per cent in 2019, the slowest rate since 2016, before rising to 2.3 per cent in 2020.

He said the weak momentum reflects negative surprises in the first half of 2019, elevated domestic policy uncertainty in some large economies, heightened US-China trade tensions, and somewhat lower global growth.

With regards to the Caribbean, the IMF official told reporters that “economic prospects are generally improving, but with substantial variation across countries”.

He said with improved energy production and higher commodity prices, commodity exporting countries are expected to see some modest recovery in growth, except in Guyana, where the start of oil production in 2020 will provide a substantial boost to growth.

“More generally, regional growth continues to be impeded by lingering structural problems including high public debt, poor access to finance, high unemployment and vulnerability to commodity and climate-related shocks,” he said.

Werner said sluggish activity in Latin America and the Caribbean in the first half of this year largely reflects temporary factors, including adverse weather conditions that reduced mining output in Chile and agricultural output in Paraguay.

He said weaker global growth and lingering US-China trade tensions have also hurt the Latin America region through their impact on commodity prices and exports.

The IMF official said risks to the outlook remain tilted to the downside, including from a further escalation of US-China trade tensions, a slowdown in major economies, and tighter global financial conditions.

“The main domestic risks include a further rise in policy uncertainty, reversal of reforms, and natural disasters. Although portfolio flows were strong early this year, they declined in May-June and could decline further if downside risks were to materialize.

“Given weak growth prospects and significant downside risks, economic policies will need to strike a balance between supporting growth and rebuilding buffers.”

He said regarding policies, fiscal consolidation remains a priority in many countries in the region given high public debt levels.

“This will likely lower growth, but its contractionary effects can be mitigated by protecting public investment and well-targeted social expenditures, while raising revenue and cutting non-priority expenditure.

“In light of lower global growth and an easing bias across major advanced economy central banks, monetary policy can remain supportive of growth in the region, especially given well-anchored inflation expectations, negative output gaps, and generally subdued inflationary pressures in most countries. But efforts should continue to monitor corporate and household leverage to safeguard financial stability.”

Werner said beyond policies to support a cyclical recovery, structural reforms remain an imperative and need to be accelerated to boost potential growth.

“Such reforms should include opening the economies further to trade and foreign direct investment, an easing of regulations in product and labour markets, enhancing competition, and improving the quality of human and physical capital,” he noted.

CARICOM remains divided at OAS on Venezuela issue

Countries in the Caribbean remain divided on the way forward in dealing with the protracted political crisis in Venezuela.

At a meeting of the Permanent Council of the Organisation of American States (OAS) on Tuesday, four Caribbean countries voted to “accept’ the nomination of a candidate supported by Opposition leader Juan Guaido, who is seeking to replace President Nicolas Maduro as head of state in the South American country.

St. Lucia, Jamaica, Haiti and the Bahamas voted in favour of accepting Gustavo Tarre “as the National Assembly’s designated permanent representative, pending new elections and the appointment of a democratically elected government,” in Venezuela.

But Antigua and Barbuda, Dominica, Grenada, St. Vincent and the Grenadines, Suriname, joined Venezuela in voting against the measure, while Barbados, Guyana, St. Kitts- Nevis, and Trinidad and Tobago abstained. Belize was the only CARICOM country absent when the vote was taken on Tuesday.

The OAS Permanent Council is chaired by the United States, which is at the forefront of efforts to remove Maduro, who was sworn into office for a second consecutive term earlier this year, from power.

The four CARICOM countries that voted in favour of the resolution have supported the so-called Lima Group that is seeking Maduro’s removal and last month met with United States President Donald Trump on Venezuela.

CARICOM has adopted a united position on the Venezuelan matter and in February, the regional leaders at their inter-sessional summit in St. Kitts-Nevis reiterated their position of non-interference in the internal affairs of Venezuela and said they were prepared to mediate in the process to bring about a peaceful resolution to the crisis.

The vote at the OAS came on the same day that the St. Lucia government said that it was re-affirming its position that the Caribbean must remain a zone of peace and that there should be “no third state intervention” in Caracas.

Sir Neville Cenac, Governor General St. Lucia

Governor General, Sir Neville Cenac, delivering the traditional Throne speech at the start of a new parliamentary session in St. Lucia, in which he outlined the government’s priorities, said that in the case of Venezuela, “we have reaffirmed that the Caribbean must remain a zone of peace, consistent with the provisions of the Treaty for the Prohibition of Nuclear Weapons in Latin America and the Caribbean (Treaty of Tlatelolco) and the Proclamation of Latin America and the Caribbean as a Zone of Peace, endorsed by all 33 Member States of the Community of Latin American and Caribbean States (CELAC).  “We are unequivocal in our view that there should be no third state intervention in the internal affairs of Venezuela and will continue to resist any action that could jeopardize the peace, safety or security of the Caribbean region,” Sir Neville told legislators.

The Governor General also said that in July, St. Lucia will assume the chairmanship of the 15-member CARICOM grouping, adding “notwithstanding the matters that divide us, we must continue to deepen the integration movement to the benefit of all member states.

“We must take concerted action to combat climate change, we must find common creative ways to resist efforts to undermine our economic bases.  Above all, we must identify the means of pursuing individual developmental interests without rending asunder the ties that bind us as a region,” the Head of State told legislators.