Caribbean Countries Faced with Growth and Resilience Challenge

• After a series of shocks over the past five years, the global economy seemed to have stabilised, at steady but underwhelming rates, as compared with recent experience, according to the International Monetary Fund (IMF). However, the landscape has now changed, with major policy shifts signalling a reset of the global macroeconomic environment.
• In early April, the U.S. effective tariff rate jumped to levels not seen in a century. However, while trade talks continue and there’s been a scaling back of some tariffs, trade policy uncertainty remains off the charts.
• In the IMF’s latest World Economic Outlook, the agency projected tepid growth in the Caribbean region overall, even before accounting for the U.S. trade policy announcements. Stronger performance in some countries, such as Jamaica and Trinidad and Tobago, was offset by slower growth in others. Furthermore, in several countries, crime continues to weigh on growth prospects. Particularly in Haiti, where the security situation hampers efforts to sustain economic activity, implement reforms, and attract aid and foreign direct investment.
• On top of that, the IMF now estimates that the April tariff announcement and its global spillovers would lower Caribbean regional growth by at least 0.2 percentage points on average. But the impact varies across countries.
• In tourism-dependent economies, where growth is closely tied to U.S. economic activity, the impact will mainly depend on the size of the U.S. tourist base. While in oil-exporting countries, lower commodity prices and higher volatility are the main channels of transmission. Lower global growth means lower demand for these commodities, which adversely impacts the economies of commodity-exporting countries.
• Slower growth, while a relatively recent phenomenon from a global perspective, is, unfortunately, not new to the Caribbean. Declining growth trends in the Caribbean region have loomed over the longer horizon, according to the IMF. This presents the Caribbean with an aggravated challenge, to reverse the trend of slower growth at a time when global growth is also declining. Notwithstanding, there are exceptions to the regional trend. In particular, Guyana’s economy has grown rapidly over the past two decades, progressing from low-middle-income to high-income status. Growth accelerated to over 45% on average in the past three years, making Guyana the fastest-growing economy in the world.
• Addressing the Caribbean growth challenge requires systematic and comprehensive policies to strategically improve the factors that contribute to growth potential. The Caribbean’s productivity growth has declined to almost zero and is seen as the root of the Caribbean’s growth challenge. In addition to productivity growth, physical and human capital development need to be accelerated, which, according to the IMF, will require as much effort as the effort put into the macro stability reforms successfully undertaken in Jamaica, Barbados and Suriname.

(Source: IMF)