IMF Warns Middle East Conflict to Drive Higher Inflation Across CARICOM

• The International Monetary Fund (IMF) has projected mixed economic performance across the Caribbean Community (Caricom) over the next two years, with growth expected to range widely between tourism-dependent states and commodity exporters. Nigel Chalk, Director of the IMF's Western Hemisphere Department, said projections span from 3.1% among tourism-dependent countries to 19.1% among commodity exporters.
• He also noted that the ongoing conflict in the Middle East will have "unambiguously negative economic impacts for both economic activity and the population." Tourism-driven economies are likely to be among the hardest hit due to high debt levels and heavy reliance on imported energy, with net energy imports averaging around 6.0% of GDP.
• According to IMF projections, the Caribbean region as a whole is expected to record average growth of 5.7% in 2026 and 8.6% in 2027. Tourism-dependent Caribbean economies are forecast to grow by 0.9% in 2026 and 2.5% in 2027, while non-tourism-dependent economies are expected to perform more strongly at 7.9% and 11.3% over the same period. Among tourism-dependent states, Jamaica is projected to contract by 1.2% this year before growing 3.1% in 2027. Commodity-exporting economies are expected to outperform, with Guyana at 16.2% rising to 19.7%, Suriname at 3.9% increasing to 4.4% and Trinidad and Tobago at 0.8% rising to 3.0%.
• Chalk said the Western Hemisphere began 2026 on relatively stable footing, with growth near potential in many countries and inflation close to targets. However, the Middle East conflict has introduced fresh risks through energy price shocks, capital flow shifts and heightened investor uncertainty. "Countries are being affected by shifts in global financial conditions and capital flows, by swings in investor risk aversion, and by volatile commodity prices," he said. Still, oil-producing countries including Argentina, Brazil, Canada, Colombia, Ecuador, Guyana, Trinidad and Tobago, the United States and Venezuela may benefit from higher energy prices, which could strengthen trade balances and fiscal positions, though vulnerable populations even in those countries would still face rising food and fuel costs.
• Inflation pressures is projected be broad-based across the region, affecting fuel, transport, food and other essential goods. "Inflation will be higher for all," Chalk said, adding that the situation will increase hardship for lower-income households. He described the current environment as a renewed and unpredictable challenge for a region still recovering from the effects of the COVID-19 pandemic.
• Chalk stressed the importance of strong macroeconomic frameworks, saying countries with credible fiscal policies, low debt and anchored inflation expectations are better positioned to manage shocks. He encouraged governments with fiscal space to use it carefully, while advising energy exporters with limited reserves or high debt to save windfall gains.
• It was also noted that central banks across the region will once again be required to prioritise price stability, noting that some institutions will face greater difficulty due to weaker monetary frameworks. He also urged governments to resist political pressure to delay necessary adjustments to food and fuel prices, and to protect social safety nets where possible.

(Source: Caribbean National Weekly)