Caribbean Countries To Experience Economic Growth In 2015: CDB

BRIDGETOWN, Barbados, CMC – The Barbados-based Caribbean Development Bank (CDB) is projecting that regional countries will experience economic growth of between one and three percent this year.

But it said while countries like Trinidad and Tobago are expected to record growth at the lower end, Haiti, Guyana and Suriname should record growth of between 3.5 and 4.5 per cent.

“Similar high rates of growth are also expected in Antigua, Barbuda and St. Kitts and Nevis, as the recovery in regional tourism is expected to strengthen further. By the same token, Barbados, British Virgin Islands, St. Lucia and St. Vincent and the Grenadines are all expected to show improvement relative to their weak performances in 2014.”

The CDB noted that the Caribbean Tourism Organization (CTO) expectations of continued recovery are mainly being driven by forecasts for rising source market incomes and lower fuel costs.

It said stay-over arrivals should also be supported by negotiated airlift increases to several regional destinations, along with additional room, stock and enhanced marketing, associated with current investments by major hotel brands.

But the CDB warned that some of the downside risks identified in the global outlook, together with more localised risks, have significant implications for the region’s prospects, although there are some opportunities as well.

“In tourism, again, destinations that are highly dependent on the United Kingdom market, may see some fallout from any fiscal tightening there,” it said, noting that a similar risk exists in relation to the possibility of further Euro area weakening.

“Notably, European visitors account for around 14 per cent of stay-over arrivals. For regional commodity exporters, a major concern would be if commodity prices were to once again decline more sharply than anticipated by the market, which would curtail mining and quarrying output as in 2014.”

The CDB said that at the same time, further reductions in oil prices could threaten the sustainability of the PetroCaribe arrangement, under which many Caribbean countries finance petroleum imports on extremely concessional terms, representing a tail-end risk to fiscal and debt sustainability.

“In addition, from both the growth and fiscal perspectives, the outlook is subject to the perennial risks of natural disasters and other weather-related challenges, which over the years have randomly and devastatingly reversed BMCs’ (Borrowing member countries) economic fortunes.

“Conversely, some of these risks also exhibit upside potential if the opposite were to occur – if commodity prices were to stage a recovery, or the EU and/or UK were to grow faster than projected, for example.”

The CDB said that a reduction in commodity prices would assist in lowering fuel and energy costs, further tamping down inflationary pressures.

But it said this would also present the opportunity for regional governments to reduce expenditure on fuel subsidies where applicable.

“Overall, therefore, CDB is cautiously optimistic about the outlook for the region in 2015, while taking a longer-term view on the policy priorities. The Bank anticipates further strengthening of the regional recovery in 2015, which would allow for a continuation of the reduction in unemployment that started to take hold in 2014.

“Nevertheless, lingering development challenges continue to dampen medium and long-run prospects in most BMCs. Infrastructure needs are acute unemployment, particularly among the youth, remains unacceptably high; poverty is still too widespread, and crime and violence too prevalent,” the CDB said, noting that natural hazards and climate change impacts, as well as overreliance on hydrocarbon-based energy sources, continue to compound these issues.

The CDB said that last year,  the fastest economic growth rates were estimated for the more tourism-dependent economies; while some large commodity exporters were also able to grow quite rapidly, led by the services sector.

St. Kitts and Nevis, as well as the Turks and Caicos Islands (TCI), each experienced accelerated growth of around four per cent, based on the strengthening recovery in tourism, and continued investment inflows for mainly tourism and real estate-related construction.

Despite declines in mining and quarrying output in Belize, Guyana and Suriname, all three recorded growth rates in excess of three per cent led by construction and other services.

The CDBN noted that Haiti, although primarily a commodity exporter, experienced a slight decline in growth, mainly due to a large drought-related contraction in agricultural output, but was similarly boosted by ongoing post-earthquake reconstruction and, to a lesser extent, tourism.

Moderate economic gains of between one and three per cent were recorded for services-dependent Anguilla, Antigua and Barbuda, The Bahamas, Cayman Islands, Grenada and Montserrat.

Relatively modest increases of just under one per cent were estimated for Dominica and Jamaica, but these, nevertheless, represented improvements when compared with 2013.

“In these two economies, which are somewhat more diversified than other regional tourism destinations, with relatively large commodity export sectors…expansions in tourism and construction outweighed declines in manufacturing and slowdowns in mining and quarrying, as well as a slight contraction in agriculture for Dominica,” the CDB noted.

It said however, there were a few exceptions to the ongoing strengthening of the recovery in the region. Most notably, Trinidad and Tobago, which accounts for nearly a third of the region’s total gross domestic product (GDP) and therefore weighs heavily on overall regional growth, slowed considerably to record modest growth in 2014.

“Operational challenges and the significant drop in oil prices during the year suppressed petroleum output, driving a decline in the mining and quarrying sector,” the CDB said.

It said also, that sizeable economic contractions in St. Lucia and St. Vincent and the Grenadines in 2014 partly reflected the impact of the so-called Christmas Eve Trough, just before the start of the year, which exacerbated pre-existing, chronic weaknesses in critical sectors.

In St. Lucia, the impact of the storm on agriculture, together with a continuation of declines in construction, distribution and manufacturing observed in most years since 2009, offset relatively strong growth in tourism.

On the other hand, manufacturing provided the main positive impetus in St. Vincent and the Grenadines, as agriculture contracted sharply due to the storm and drought impacts in the second half of the year, while tourism continued its secular downtrend of recent years and construction declined.

“Overall, the Bank’s preliminary estimate of growth in real GDP for the region in 2014 was 1.3 per cent. While this was lower than the revised figure of 1.7 per cent for 2013, this was mainly due to the critical supply challenges, and sharper-than-expected drop in prices of key commodities, which constrained performances among the region’s five major commodity exporters,” the CDB said.