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East Caribbean Business Forecast Report Q2 2011
Business Monitor International, March 2011, Pages: 50
No Easy Way Back From Recession!
Although most East Caribbean economies will exit recession in 2011, the region remains mired in weak growth, as poor domestic demand combines with a still-subdued external picture. Huge fiscal deficits and soaring debt piles remain the most pressing issues for many of the economies, but with import levels slowly starting to tick up we caution that balance of payments stability is also at risk over the medium term. In this Q211 East Caribbean Business Forecast Report, we identify which countries are particularly at risk of a prolonged period of low growth, and assess the progress of policies intended both to stimulate growth and reduce fiscal imbalances.
In November, the publisher outlined our scepticism about government plans to boost growth in Trinidad & Tobago’s non-energy sector, and recent data from the central bank reaffirms these doubts. We are particularly concerned about the state of domestic creditors, who appear unwilling to extend the capital required to help stimulate private consumption and fixed investment. This means the onus will fall on either the government or foreign investors, and as we doubt either will be willing to do this over next 12 months, our outlook for domestic economic activity remains weak.
While much of Latin America is revelling in the fastest growth rates in decades, Barbados continues to feel the effects of weak domestic and external demand. According to the central bank’s latest economic review, real GDP growth contracted a further 0.9% year-on-year over the first three quarters of 2010, an especially poor figure given the 4.7% y-o-y fall in output posted during the same period of 2009. With little sign that activity picked up significantly over the final months of the year, we now believe the island suffered a second consecutive year of recession in 2010, and are lowering our real GDP estimate to -0.5% from 0.5%. Our forecasts for 2011 and 2012 remain unchanged at 1.3% and 1.6% respectively, reflecting our long-held view that Barbados’ recovery will be both long and weak.
While we expect Guyana’s structural current account deficit to remain in place over the medium term, rising exports and current transfers will contribute to a narrowing of the shortfall. That said, similarly to other Caribbean states, Guyana will need to rely on consistently strong capital and financial surpluses in order to fund these sizeable current account deficits. While it is difficult to forecast foreign direct investment and portfolio inflows due to their volatile nature, we believe that Guyana’s business-friendly policies and relatively untapped resource endowment makes the country attractive for further overseas investment, reinforcing our view that the country’s overall balance of payments situation is encouraging.
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