AN ANALYSIS OF THE ONGOING RECOVERY IN CARIBBEAN ECONOMIES POINTS TO AN INFLECTION POINT IN GROWTH PROSPECTS AND EXTERNAL RISKS.
A new report from the Inter-American Development Bank (IDB) highlights the progress in economic recovery in most Caribbean economies, despite persistent external shocks, but it warns that risks remain in the near-term.
Global and Regional Economies at a Crossroads notes that tourism-oriented economies have recovered more rapidly than expected from the sharp pandemic-induced contraction of 2020. Commodity prices have declined, though they remain above pre-pandemic levels, with persistent negative effects on households across the region, while at the same time buoying macroeconomic prospects for commodity exporters.
The global economy is characterized by softening growth combined with lingering above-average inflation, as noted in the spring edition of the IMF’s World Economic Outlook. The IMF’s Regional Economic Outlook for the Western Hemisphere, titled “slower growth, stubborn inflation.” The IDB Macro Report earlier this year called for “preparing the macroeconomic terrain for renewed growth” as Latin America and the Caribbean face the triple threat of social, fiscal and growth challenges. The Caribbean is at a crossroads in addressing these challenges as well.
The key findings of the report:
- After the economic recovery of 2021 and 2022, key forecasters expect a global economic slowdown in 2023, driven mostly by expected lower growth in advanced economies. That said, those advanced economies remain the key drivers of demand for Caribbean tourism exports as well as commodity prices.
- Regional economies have grown faster than the global economy, recovering from a deeper shock, but growth rates are likely to converge to pre-pandemic levels unless there are significant structural changes to enhance productivity, as noted in other editions of this periodical. In the near-term, key macroeconomic risks and economic growth opportunities remain relevant. Risks include external shocks from commodity prices, a potential synchronized downturn in advanced economies and external financing conditions. Emerging opportunities include near-shoring (especially for global services), a renewed impetus for regional integration (especially for agriculture), and strengthening of existing lead sectors, with a focus on environmental sustainability and green energy. Government and private sector responses to take advantage of emerging opportunities can steer economies onto the high path in the current crossroads, with superior economic growth than what was experienced pre-pandemic.
- Country circumstances vary substantially, as noted in the country sections of this report. Some countries’ (The Bahamas and Jamaica) tourism sectors have recovered more rapidly than others (Barbados), and there is the hydrocarbon-fueled extraordinary growth of Guyana that dwarfs the economic growth of all countries in the Western Hemisphere. Key risks and opportunities also vary across countries, and these are analyzed in the country sections of the report.
“Government and private sector responses to take advantage of emerging opportunities can steer economies onto the high path in the current crossroads, with superior economic growth than what was experienced pre-pandemic. Continued efforts to mitigate risks through macroeconomic policy strengthening continue to be a key enabler for future investment and innovation.” said David Rosenblatt, the Regional Economic Advisor for the IDB’s Caribbean Department.
Global and Regional Economies at a Crossroads is part of the IDB’s Caribbean Economics Quarterly series. In addition to a regional overview section, it has country-specific sections for The Bahamas, Barbados, Guyana, Jamaica Suriname, and Trinidad and Tobago.