• Barbados’ real GDP growth is expected to accelerate from 1.7% in 2021 to 7.5% in 2022 as the effects of the COVID-19 pandemic diminish. Following a slower than expected rebound in international tourism in 2021, over the coming months, Fitch expects that growing demand for international tourism and rising vaccination rates in source markets will provide tailwinds to growth. 
• However, rising oil prices caused by the Russia-Ukraine conflict will keep energy and commodity prices elevated in both Barbados and key tourism source markets, weakening purchasing power, possibly resulting in elevated ticket prices and undercutting growth. 
• In accordance with Barbados’ debt reduction programme, it is expected that expenditure growth will slow to 4.2% in FY2021/2022, from 15.1% in FY2020/2021. Over the coming years, the government is expected to further tighten fiscal policy as pandemic-era spending is removed. After government debt exceeded 160.0% of GDP in 2018, Barbados entered into a four-year Extended Fund Facility with the IMF. While the guidelines of the programme were temporarily suspended to account for Covid-19-related spending, the government will return to prioritising fiscal consolidation in 2022, inhibiting growth. 
• In addition, investment has remained muted in recent years. The rapid rise in government debt weakened Barbados’ attractiveness for investment. Foreign direct investment increased by just 2.6% y-o-y in H1 2021, from an estimated 22.0% increase in 2020. Over the coming months, however, we expect that the recovery in the tourism industry will boost investment sentiment only modestly, hindering overall growth. 
• Risks to the Agency’s growth forecast are weighted to the downside, if inflation should continue to rise above analysts’ expectations in Barbados’ key source markets, such as the US (6.1%) or UK (6.2%), then demand for international travel would weaken, hindering growth. Additionally, rising COVID-19 case levels in either Barbados or source markets may disincentivise traveling abroad, further delaying a full recovery of the tourism sector.

(Source: Fitch Solutions & NCBCM Research)

• A key part of the yield curve inverted on Tuesday, as the 2-year U.S. Treasury note yield rose above the benchmark 10-year U.S. Treasury note yield for the first time since September 2019. An inversion of the two-year to 10-year (spread) part of the curve is viewed by many as a reliable signal that a recession is likely to follow in one to two years. 
• While the brief inversion in August and early September 2019 was followed by a downturn in 2020, no one foresaw the closure of businesses and economic collapse due to the spread of COVID-19. 
• Investors are concerned that the Federal Reserve will dent growth as it aggressively hikes rates to fight soaring inflation, with price pressures rising at the fastest pace in 40 years. Fed funds futures traders expect the Fed's benchmark rate to rise to 2.61% by February 2023, compared to 0.33% today. 
• Another part of the yield curve that is also monitored by the Fed as a recession indicator remains far from inversion. That is the three-month to 10-year (spread) part of the curve, which is currently at 182 basis points. Some analysts say that the curve has been distorted by the Fed's massive bond purchases, which are holding down long-dated yields relative to shorter-dated ones. 
• Short and intermediate-dated yields have jumped as traders price in more and more rate hikes. Meanwhile, analysts say that the U.S. central bank could use roll-offs from its massive $8.9Tn bond holdings to help re-steepen the yield curve if it is concerned about the slope and its implications.

(Source: Reuters)

• U.S. consumer confidence rebounded from a one-year low in March amid growing labor market optimism, but rising interest rates as the Federal Reserve battles raging inflation could hurt motor vehicle purchases and crimp consumer spending. 
• The labor market continues to favor workers, with other data on Tuesday showing job openings hovering near record highs in February. Tightening labor market conditions are boosting wages, providing some cushion against inflation. Consumers' one-year inflation expectations shot up to an all-time high of 7.9%. 
• The Conference Board said its consumer confidence index rose to a reading of 107.2 this month from a downwardly revised 105.7 in February. Economists polled by Reuters had forecast the index falling to 107.0 from February's initially reported 110.5. 
• The improvement in confidence followed the rolling back of COVID-19 restrictions across the country, and was despite gasoline prices remaining above $4.00 per gallon as Russia's war against Ukraine rages on. 
• Consumers' upbeat views of the labor market were underscored by the Labor Department's Job Openings and Labor Turnover Survey, or JOLTS report showing job openings, a measure of labor demand, fell 17,000 to 11.266Mn on the last day of February. Despite the second straight monthly decline, job openings were not too far from a record high of 11.448Mn set in December.

(Source: Reuters)

• Fitch Solutions forecasts that the Jamaican government will reduce its fiscal deficit to 0.1% of GDP in FY2022/23 (April 1, 2022 – March 31, 2023), from an estimated 0.3% in FY2021/22, as revenue growth outpaces spending. 
• The government ran budget surpluses from FY2017/18 to FY2019/20 to comply with consecutive IMF programmes from 2013 to 2019. However, the impact of the COVID-19 pandemic caused economic activity and government revenues to contract in FY2020/21, flipping the balance into a deficit. 
• With the effects of the pandemic subsiding, Fitch expects that the GOJ will return to a path of consolidation in the coming years as it winds down social spending initiatives enacted during the pandemic. In the short-to-medium term, the government will likely increase debt repayments and contain current expenditures, resulting in a budget surplus in FY2023/24. 
• Revenues will grow to 29.5% of GDP in FY2022/23, from an estimated 28.3% in FY2021/22, driving a reduction in the deficit. It is expected that increased inflows of foreign tourists owing to a resumption of travel and tourism, and a tightened labour market over the coming months will boost receipts from the General Consumption Tax (GCT), and income tax intakes.

(Source: Fitch Solutions)

• Mexico’s current account deficit is expected to narrow to 0.1% of GDP in 2022, from 0.4% in 2021, as the goods and services trade deficit shrinks and robust remittance inflows expand the secondary income surplus. 
• Fitch Solutions expects that Mexico will run modest current account deficits in the medium term, averaging 0.5% of GDP, which will likely be covered by capital inflows. Additionally, stronger export growth relative to imports will narrow the goods and services trade deficit to 0.7% of GDP in 2022, from 0.9% in 2021. Furthermore, continued growth is expected in non-oil goods and services exports in the remainder of the year, fuelled by demand from the US. 
• Although there has been a revision in the US growth forecast for 2022 from 3.5% to 3.1%, it remains above the pre-pandemic trend, suggesting that US demand for Mexican manufacturing exports – which fuelled 18.6% growth in goods exports in 2021 - will remain relatively robust. Continued US growth will also drive increased tourism flows to Mexico, continuing the recovery in services exports, while a strong US labour market drives robust remittance flows to Mexico. 
• Notably, higher crude oil prices and demand from the US will underpin 5.8% of growth in exports in 2022. Mexico’s net crude oil exports are expected to increase to 16.2% in 2022, as production rises slightly and global prices remain elevated following Russia’s invasion of Ukraine in February 2022.This will however be tempered by the expected 4.9% growth in imports in 2022. 
• Mexico’s reliance on imports of refined fuels makes it a net energy importer, and as a result of higher global energy prices, the cost of imports will increase.  However, it is anticipated that non-oil imports will be more modest due to elevated inflation and rising interest rates. This will slow demand for consumer and capital imports, offsetting some of the increase in energy imports.

(Source: Fitch Solutions)

• The IDB’s Board of Executive Directors approved a new country strategy with Trinidad and Tobago for the 2021-2025 period. The strategy aims to help the country implement its digital transformation agenda to achieve more sustainable and inclusive growth, which is the first pillar of the country’s medium and long-term post-pandemic development plan. 
• The new strategy will support the digital transformation of Trinidad and Tobago’s economy. The strategy focuses on three areas: improving the business environment to enable digital transformation; expanding the use of digital tools to improve educational outcomes and digital skills; and enhancing the delivery of services. 
• Digital transformation will be a critical factor in the post-pandemic recovery and Trinidad and Tobago has taken bold steps towards advancing this agenda including the establishment of a dedicated Ministry of Digital Transformation in 2021. 
• A key element of the strategy focuses on using digitalization to bolster not only the public sector, and public sector services, but to empower the private sector and individual citizens of Trinidad and Tobago. The strategy will enhance and build on the IDB’s partnership with the sovereign, which includes its ongoing engagement in key development sectors such as state modernization, urban development and housing, health, energy, transportation, water and sanitation, environment, and the blue economy.

 (Source: Inter-American Development Bank)

• Crude Oil prices tumbled about 7% on Monday after China's financial hub of Shanghai launched a lockdown to curb a surge in COVID-19 infections, prompting renewed fears of demand destruction. 
• Brent crude futures fell $8.17, or 6.8%, to settle at $112.48 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $7.94, or about 7%, to settle at $105.96 a barrel. Crude futures have been volatile since Russia's invasion of Ukraine in late February. Last week, Brent gained nearly 12%, while WTI rose almost 9%. 
• Shanghai has entered a two-stage lockdown of 26 million people on Monday in an attempt to curb the spread of COVID-19. Officials closed bridges and tunnels and restricted highway traffic. Andrew Lipow, president of Lipow Oil Associates in Houston said that the fear that the lockdowns could spread combined with a sell-off has resulted in further decline of the market. 
• The news impacted the global oil market because China is the world´s biggest crude consumer. The nation uses around 15Mn barrels per day, and imported 10.3Mn barrels per day in 2021, according to Andy Lipow, president of Lipow Oil Associates. However, in light of the renewed lockdown restrictions, oil demand in China, the largest crude importer globally, is expected to be 800,000 barrels per day (bpd) softer than usual in April, said Bjarne Schieldrop, chief commodities analyst at SEB bank. 
• Hopes for progress in peace negotiations between Russia and Ukraine, which could start in Turkey on Tuesday, also weighed on prices. However, analysts expect more bullish sentiment when the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, meet on Thursday to discuss a planned 432,000-bpd increase to production quotas.

(Source: Reuters)

• The U.S. Treasury on Monday proposed a new mechanism to comply with and enforce a 15% global corporate minimum tax agreed to last year by 136 countries, partly by denying deductions for taxes paid in jurisdictions with lower rates. 
• The new Undertaxed Profits Rule proposed as part of President Joe Biden's fiscal 2023 budget plan would replace the current U.S. Base Erosion Anti-Abuse Tax (BEAT) with a new system that would act as a "top-up tax" to ensure that multinational corporations pay an effective tax rate of at least 15%, the Treasury said in budget documents released on Monday. The Treasury said in its revenue proposals that the undertaxed profits rule would apply to entities with more than $850Mn in global annual revenue in at least two of the last four years. 
• The global minimum tax deal negotiated through the Organization for Economic Cooperation and Development (OECD) is aimed at ending a downward competitive spiral of corporate rates and an erosion of government revenues while denying advantages to tax-haven countries. 
• A key feature of Treasury's proposed rule is that it would generate additional revenue by denying deductions to companies to the extent that they are paying a tax rate below 15%.

(Source: Reuters & Financial Post)

• Jamaica’s total spending on imports and earnings from exports for the period January to November 2021 increased by 25.2% and 20.2%, respectively, relative to the similar period in 2020, as reported by the Statistical Institute of Jamaica (STATIN). 
• Expenditure on imports for the period amounted to US$5,389.4Mn compared to US$4,303.8Mn for the corresponding 2020 review period. The increase in imports was mainly attributed to higher imports of “Fuels and Lubricants” (68.3%), “Raw Materials/Intermediate Goods” (23.3%), and “Consumer Goods” (11.4%). 
• The prices for “Fuels and Lubricants” have however increased since November 2021 owing to the geopolitical tensions between Russia and Ukraine, and as such we expect increased spending on imports from this category in upcoming reports. 
• Earnings from total exports for January to November 2021 were valued at US$1,336.6Mn; 20.2% above the US$1,111.6Mn earned in the comparable review period. The increase in exports was driven mainly by higher exports of “Mineral Fuels” which rose by 94.2%. 
• The main trading partners for imports during the review period, were USA, Brazil, China, Japan and Turkey. Imports from these countries rose by 28.4% to US$3,385.9Mn, accounting for 62.8% of total expenditure. This increase was due chiefly to higher imports of crude oil from Brazil and motor spirit from the USA. 
• Jamaica’s top five exports partners for the 2021 review period were the USA, the Netherlands, Canada, the United Kingdom and the Russian Federation. Earnings from these countries increased by 17.2% to US$964.7Mn, accounting for 72.2% of total exports. The increase was due mainly to higher exports of bunker C fuel oil to the USA and Alumina to the Netherlands.

(Source: STATIN and NCBCM)

• Fitch Solutions revised its 2022 growth forecast for the Dominican Republic to 4.5%, from 4.8% previously, as the Russian invasion of Ukraine will spur inflation and weaken external demand; however, the economy is still expected to outperform regional peers. While real GDP rose 11.1% y-o-y in Q4 2021, the Russian invasion of Ukraine on February 24 will keep commodity prices elevated and disrupt global trade, limiting Dom Rep’s growth in the quarters ahead. 
• Consequently, private consumption growth will slow to 4.3% in 2022, down from 6.6% in 2021, as rising prices limit purchasing power. From 2017 to 2021, private consumption accounted for 68.3% of GDP on average and was a major catalyst of the economic rebound in 2021. The Russian invasion of Ukraine will weaken global growth, constraining external demand for Dom Rep’s goods and services exports over the coming quarters. 
• While total investment is expected to increase by 5.2% in 2022, this is a significant reduction from the 22.1% expansion recorded in 2021. This will be due to higher borrowing costs and greater risk aversion among global investors.  
• The Banco Central De La República Dominicana (BCRD) began a rate hiking cycle in Q4 2021 and has since raised rates by 200 basis points, to the current policy rate of 5.00%. Fitch forecasts that the BCRD will increase its policy interest rate to 7.00% by end-2022 which, coupled with its more hawkish outlook for the US Federal Reserve, will lift borrowing costs and weaken business investment in the Dominican Republic.

 (Source: Fitch Solutions)