• The recent high tensions between Guyana and Venezuela over the former’s Essequibo region have increased uncertainty for Guyana’s world-leading economic growth outlook.
• In Fitch’s core scenario where Venezuela does not invade Guyana, the short-term economic impact is expected to be modest, though some foreign oil companies could pull back on investment plans, which would hurt output growth in the long term.
• Currently, Fitch expects Guyana will be one of the fastest-growing economies in the world in 2024, following up its 29.5% growth in 2023 with a 23.5% expansion next year. This view is rooted in the forecast for rapid oil production growth. The oil boom is driving an expansion of employment, investment, and exports, while also allowing the government to ramp up public spending.
• In a less-likely scenario where Venezuela does launch an invasion of Essequibo, Guyana’s economy would take a significant hit, as it seems unlikely to be able to hold onto the region – and its massive natural wealth – without help from foreign militaries.
• Following this report, on, December 14, 2023, in Argyle, Saint Vincent and the Grenadines, His Excellency Irfaan Ali, President of the Co-operative Republic of Guyana and His Excellency Nicolas Maduro, President of the Bolivarian Republic of Venezuela held discussions on matters consequential to the territory in dispute between their two countries.
• The countries came to the resolve that, Guyana and Venezuela, directly or indirectly, will not threaten or use force against one another in any circumstances, including those consequential to any existing controversies between the two States.
• Other declarations were made including resolving their current issues by following international law; promoting peaceful coexistence and good neighbourliness; and continuing dialogue on any other pending matters of mutual importance to the two countries

(Sources: Fitch Solutions & The Joint Declaration of Argyle for Dialogue and Peace Between Guyana and Venezuela

• Following an initially sluggish post-pandemic recovery, Mexican real GDP growth has now averaged around 4.0% on a q-o-q annualized basis for eight consecutive quarters, which compares to a 2015-2019 run rate of closer to 1.5%.
• This economic strength has in turn reflected the combined impact of US economic resilience which has lifted both exports and supported remittance inflows, the Mexican government’s pursuit of a relatively loose fiscal policy stance, and nearshoring-related headlines that are helping to boost private sector sentiment.
• Given these factors, Fitch remains upbeat on the outlook for the Mexican economy, which it now anticipates will grow by a solid 2.5% (previously 2.0%) in 2024 after an estimated 3.5% expansion in 2023.
• This remains the base case that growth will ease throughout 2024 as the external backdrop turns gradually less favourable, weighing on exports and remittance inflows.
• These headwinds will be mostly offset by the government’s ongoing fiscal largesse over H124, but as spending is retrenched over the second half of the year growth should lose steam.

(Source: Fitch Solutions

• U.S. retail sales unexpectedly increased by 0.3% in November, signalling a robust start to the holiday shopping season. Following a 0.2% decline in October, this growth is attributed to deep discounting by retailers.
• The rebound in retail sales underscores consumers' resilience, supported by a strong labour market. This positive trend challenges market expectations of an early rate cut by the Federal Reserve, which recently signalled the end of its two-year tightening of monetary policy. This same resilience provides a foundation for the Fed to achieve a soft landing but shows the Fed will likely not cut rates in early 2024.
• Online retail sales rebounded by 1.0%, reflecting a shift away from traditional brick-and-mortar stores. Various sectors experienced growth, such as motor vehicles and parts dealers (0.5%), furniture stores (0.9%), and food services and drinking places (1.6%). However, electronics and appliance outlets saw a decline of 1.1%.
• The stable labour market, evidenced by a drop in initial claims for state unemployment benefits, contributes to economists' expectations of decent fourth-quarter consumer spending and a potential GDP growth rate of 2.75%. Despite concerns about rising unemployment rolls, economists dismiss them as reflecting difficulties in adjusting for seasonal fluctuations.

(Source: Reuters)

• The European Central Bank (ECB) affirmed its commitment to maintaining record-high interest rates despite lower inflation expectations. The central bank, focused on combating a severe inflationary period, emphasised that borrowing costs would stay unchanged.
• ECB President Christine Lagarde's stance contrasted with the more dovish tone of her U.S. Federal Reserve counterpart, Jerome Powell. Lagarde stressed that inflation would rebound soon, and the ECB had no discussions about rate cuts. This differed from Powell's signal of potential interest rate reductions.
• The ECB announced plans to phase out its last remaining bond-buying scheme, a measure introduced during the COVID-19 pandemic. This move is viewed as a smaller policy change, not indicating a shift to a more dovish stance like the U.S. Federal Reserve.
• The ECB's updated economic projections revealed lower growth and inflation expectations for the coming years. ECB staff expect headline inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026, closing in on the bank's 2% target.
• Lagarde hinted at the possibility of data-rich months in the first half of the next year, implying that any rate cut might not occur before June or July. This came on the back of lower-than-expected inflation reading for November and comments from ECB board member Isabel Schnabel that were perceived as dovish.
• A sharp fall in bond yields since then has eased borrowing costs, undoing the ECB's tightening and potentially helping fuel inflation. Traders adjusted their expectations slightly, with rate cuts now anticipated in April, and the ECB's deposit rate remains at a record-high of 4%.

(Source: Reuters)

• The Bank of Jamaica has given an update on the progress of implementing the twin-peaks model, which was announced earlier this year.
• The supervisory model for the financial sector is to be implemented by the end of the 2024/25 fiscal year. 
• Senior Deputy Governor of the BOJ, Dr. Wayne Robinson, says the structure of the new model and how it will be funded is still being contemplated.
• Under the regime, the Financial Services Commission will be responsible for consumer protection and market conduct oversight, while the BOJ will manage matters of financial stability and prudential affairs.

 (Source:  RJR News)

• The Ministry of Tourism estimates that Jamaica should record 4,122,100 visitor arrivals from January to December 2023. Portfolio Minister, Hon. Edmund Bartlett said this would represent a 23.7% increase over the 2022 figure.
• Of this number, 2,875,549 are expected to be stopover visitors, representing a 16% increase over the number recorded last year.
• Additionally, Minister. Bartlett expects to end the year with 1,246,551 cruise passengers, representing a 46.1% increase over the tally for 2022.
• A breakdown of these estimated revenues, specifically including direct inflows to the government’s coffers, are Tourism Enhancement Fund (TEF) fees, which go to the Consolidated Fund, US$57.5Mn or J$8.9bn.
• There is also the Departure Tax of US$100.6Mn or J$15.6Bn; Airport Improvement Fees – US$28.8Mn or J$4.47Bn; Airline Passenger Levy – US$57.5Mn or J$8.9Bn; Passenger Fees and Charges – US$69Mn or J$10.7Bn; and the Guest Accommodation Room Tax (GART) – US$22.6Mn or J$3.5Mn.
• The influx of visitors is expected to generate US$4.3Bn in tourism earnings for 2023, representing a projected increase of 17.8% over total inflows for 2022 and a 17.2% spike over the out-turn for the pre-pandemic year of 2019.

(Source:  JIS)

• President Luis Abinader emphasised the critical role of foreign investment in the economic development of the Dominican Republic.
• Abinader highlighted the nation’s political stability and structural reforms as key attractions for investors. Tax incentives, streamlined bureaucratic processes, and legal certainty are among the measures implemented to create a favourable investment climate. He also stressed the importance of collaboration between the government, private sector, and international community for sustainable economic growth.
• The President identified tourism, renewable energy, agribusiness, and technology as key sectors for future investment. These remarks underscore the Dominican government’s commitment to fostering an environment conducive to investment and growth.
• The Dominican Republic attracted about US$4Bn in foreign direct investments (FDI) in 2022 and is positioned as a leader in Central America and the Caribbean and a prominent investment destination in Latin America.
• According to research, the country hosts 659 significant foreign investment companies, contributing 18.8% to the Social Security Treasury. FDI’s fiscal contribution has increased by 84% in dollars between 2018 and 2022, and the country projects to raise approximately US$4.3 billion in FDI this year.

(Source: Dominican Today)

• According to Moody’s, Non-financial industry companies in Latin America are facing a negative outlook for next year because of continued high interest rates, slow regional economic growth, and projected low prices for commodities because of a deceleration in China.
• The rating agency said that though credit conditions for Latin American companies will be better in 2024 than during this year, uneven growth and still-high debt costs will affect spending, investment, and employment.
• "Strict financial conditions will continue until the market uncertainty in regards to the path of U.S. rates dissipates, which will limit financing options, especially for the more than two-thirds of corporate issuers who have a speculative grade," Moody's said in a report.
• Furthermore, the El Nino climate phenomenon will last until at least mid-2024 and contribute to price instability for agricultural, metallurgical, and mining raw materials and operative disruptions in much of the region.
• Of note, it is expected that Mexico will benefit from nearshoring efforts and higher activity in the automotive, real estate, and communications sectors; however, the mining industry is at risk of government intervention, Moody's said.

 (Source: Reuters)

• After raising the policy rate by 5.25 percentage points since March of 2022, the central bank placed the policy rate on hold since July as inflation edges closer to its target. Simultaneously, the Fed signaled in new economic projections that the historic tightening of U.S. monetary policy engineered over the last two years is at an end, and lower borrowing costs are coming in 2024.
• In a new policy statement, U.S. central bank officials took explicit account of the fact that inflation "has eased over the past year," and said they would watch the economy to see if "any" additional rate hikes are needed. Implying directly that, after months of aggressive tightening and a bias towards moving rates higher, they may not need to raise them again.
• Powell also flagged the uncertainty of the outlook and said he couldn't definitively rule out higher rates at this point, even as officials looked toward a lower policy rate. He noted, "While we believe our policy rate is at or near its peak for the tightening cycle, the economy has surprised forecasters,"
• Considering the unpredictable nature of the economy, he said that while Fed officials "do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table" if it's needed.
• However, Powell emphasised that the central bank believes it has done enough in terms of rate hikes. While Fed policymakers did not want to take another rate hike off the table, it is no longer the central bank's "base case". Therefore, while officials remain free to raise the Fed's benchmark overnight interest rate again in the coming months if inflation resurges, that seems increasingly unlikely given the recent performance of inflation that has edged steadily towards the central bank's target.
• The economic projections, as a whole, cling closely to the "soft landing" scenario that has become the base case for U.S. central bankers hoping that inflation continues to slow without a recession and sharp rise in unemployment.

 (Source: Reuters)

• US. producer prices remained unchanged in November, defying expectations of a 0.1% increase. This was attributed to cheaper energy goods, with services prices also holding flat for a second consecutive month.
• The report from the Labour Department has boosted optimism that overall inflation will continue to subside. This is seen as a positive development, potentially allowing the Federal Reserve to consider interest rate cuts in the coming year. The Federal Reserve signalled a shift in its economic projections, indicating the end of a historic tightening of monetary policy.
• Goods prices were stable, with a decline in energy product costs offset by a rebound in food prices. Notably, avian flu-related issues impacted egg prices. Energy costs were pulled down by lower gasoline prices. Excluding food and energy, core goods prices rose modestly, raising concerns about potential goods deflation.
• The cost of services, a key driver of inflation, was unchanged, with lower transportation and warehousing costs. However, wholesale prices for hotel and motel rooms rose.
• Despite ongoing inflation above the Fed's 2% target, markets are anticipating a potential rate cut in May. Analysts suggest that while consumer spending continues to fuel inflation, a downward trend in service providers' costs may stabilize inflation if consumer demand cools.

(Source: Reuters)