IMF lowers its growth forecast for the Caribbean

WASHINGTON, USA, Wednesday April 25, 2012 – The International Monetary Fund (IMF) has lowered its growth forecast for the Caribbean, with Jamaica and Barbados on the bottom rungs of the regional ladder.

The IMF’s World Economic Outlook (WEO) report, published last week, predicted 3.5 per cent growth for the Caribbean in 2012, a downward revision from the 4.3 per cent projection made in September.

“High public debt and weak tourism and remittance flows continue to constrain the outlook for the Caribbean,” said the report. “Greater resolve is required in reducing debt overhang in the Caribbean while addressing weak competitiveness.”

 Jamaica and Barbados had the lowest expected growth this year – one per cent and 0.9 per cent, respectively.

Barbados was nevertheless expected to grow by 1.5 per cent next year and 3.1 per cent in 2017, while Jamaica was expected to experience only one per cent growth in 2013 and just 1.5 per cent in 2017.

Last September, the IMF predicted that Jamaica would grow by 1.7 per cent this year and three per cent in 2016.

At the launch of the World Economic Outlook, IMF economic counsellor and research director Olivier Blanchard likened the state of the global economy to a “roller coaster” over the last six months, leaving an uneasy calm after strong policy measures in Europe averted a possible “Lehman-size event”.

“One has the feeling that at any moment things could well get very bad again,” he said. “So, this very much shapes our forecast.”

The IMF lowered the forecast for growth in emerging and developing economies in general.

“For many countries, the challenges come mainly from the outside in the form of lower exports to advanced countries, because of the low growth there; of the volatility of commodity prices, which affects both exporters and importers; and of the high volatility of capital flows, which we have seen and continue to see.”

The IMF’s division chief for research, Thomas Helbling, said that most of the downward revisions to growth in Latin America in general and Jamaica in particular “are explained by the changes to the global environment”.

“In that sense, Jamaica is no different from most other countries in Latin America, where lower commodity prices and lower demand from advanced economies have weighed on growth,” he said. The region’s exposure to European banks and other companies puts additional pressure on growth.

“Looking forward, the question is always whether there is substitution for this exposure,” said Helbling. “What we are seeing in Latin America in general is that, yes, there are subsidiaries of Spanish banks, but they have been, so far, relatively less affected by the deleveraging of their European parent banks, partly because they’re mostly locally funded. So in that sense, they’re a bit shielded.”

But Spanish firms operating in Caribbean economies are constrained by the financial conditions in Europe, he said.

“This could weigh on growth in Jamaica and other economies in the region,” he said. “There is always substitution, as these companies can look for funding elsewhere for their operations outside the euro area.

“So one has to weigh the direct negative effects against the substitution, and so, that depends very much on company specific circumstances.” Click here to receive free news bulletins via email from Caribbean360. (View sample)