The continuing Eurozone crisis could contribute to the Caribbean seeing further weakened growth in the medium term, but an increased rate of growth is projected for the region due to expected strengthening in the US economy.
The growth rate for Caribbean countries is expected to increase to 3.5 per cent for 2012 from the 2.7 last year, according to the World Bank’s recently released report on the economies of developing countries.
“Improvements in the US labor market will support remittances and demand for tourism services benefiting countries in Central America and the Caribbean,” said the report. “The recent improvement in economic sentiment in the US economy and the expected gradual recovery bodes well for countries that have strong industrial economic links to the world’s largest economy.”
Healthy rates of growth are especially expected for both the Dominican Republic and Haiti, due to the former’s continued expansion of mineral outputs, and the latter’s improved political stability and accelerations in its construction and agricultural sectors.
However, the World Bank sees growth in Jamaica remaining weak, “notwithstanding a gradual recovery in the United States”, due to its large debt burden and other factors constraining investment such as crime.
Heavy debt and a hovering cloud of economic instability in the Euro area present a potential slowdown for the entire region as well.
“Should the situation in Europe deteriorate sharply, no developing region would be spared,” said the World Bank. “The world’s poorest countries will feel the fallout — especially countries that are heavily reliant on remittances, tourism or commodity exports or that have high levels of short-term debt.”
The ability of regional countries to respond to a possible sharp deterioration in global conditions as a result of the economic uncertainty in Europe will also be constrained by the depreciation of most currencies against the US dollar, as well as high oil prices.
“A significant downside risk for some of the Caribbean economies, notably Grenada, Guyana, and Jamaica, is that of a change to the concessional financing terms offered by Venezuela for oil imports,” the report said. “This could result in substantially higher oil import prices adding further pressure on current account balances. Increased competition for FDI and tourists from Cuba represent additional downside risks for the tourism-dependent economies in the region.”