Published On: Wed, Jun 5th, 2013

RBC Caribbean Economic Report -May 2013

RBCPORT OF SPAIN, Trinidad  -- Divergent ECCU growth estimates from ECLAC and IMF.

The recently released IMF Regional Economic Outlook for the Western Hemisphere suggests that the average growth rate in the Caribbean’s tourism dependent countries in 2012 was less than ½%, missing the IMF’s October 2012 projections by over ½%. The IMF expects growth in these economies to “pick up only gradually”, reaching 1.25% in 2013, though risks to the downside outweigh, given debt, external and competitiveness challenges. The report also highlighted the growing financial sector vulnerabilities in the ECCU in particular, with possible contagion effects. The commodity exporters expanded by 3.5% on average in 2012 (with the exception of Trinidad and Tobago, due to energy sector maintenance shutdowns) and growth is expected to accelerate to 3.5-4% during 2013-14.

ECLAC’s 2012 Economic Overview of Latin America and the Caribbean suggests that in 2012 (versus 2010-11) LATAM growth softened, while Caribbean growth accelerated. ECLAC revised its regional 2013 growth forecast to 3.5% (roughly on-par with the IMF), down from the 3.8% projection released in December 2012. The report suggests that the Caribbean will grow by 2% in 2013 (versus 0.9% in 2012), driven mainly by the commodity exporters, and a tourism recovery based on a stronger US economy. It is worthy of note that ECLAC data show the St. Lucia economy contracting by 3% in 2012 and growing by 2.7% in 2013. In addition, neither the IMF nor ECLAC expects any economy in the Caribbean region to experience an economic contraction in 2013.

Aruba -Central Bank 2013 Growth Forecast Cut In Half

In addition to revising its 2013 growth forecast to 2.6% down from 5.1%, the Central Bank’s Economic Forecast Monitor for April 2013 also revised several data within days of an IMF Article IV mission to Aruba. The IMF’s release stated that output is currently 12% below pre-crisis levels, but real growth is expected to resume in 2013 amid deflation, spending on infrastructure and urban renewal, and a rapid recovery in tourism. The government intends to pursue ambitious fiscal consolidation, aimed at reducing the fiscal deficit to 6% of GDP in 2013, down from an estimated 8.5% in 2012.

Bahamas -FDI Slips, But External Reserves Strengthen

ECLAC’s 2012 Inward Foreign Direct Investment in Latin America and the Caribbean (ECLAC’s FDI) report reveals a USD375 million or 45% decline in FDI inflows in 2012, possibly due to slower Baha Mar construction related flows. The Central Bank’s monthly report for March 2013 revealed a stronger external reserve position at BSD793 million or almost two months of import cover. Non-performing loans broke the relentless upward trend, declining marginally to 14.19% of total loans. A growing proportion of increasing visitor arrivals are cruise vacationers, which bodes ill for tourism sector revenues.

Barbados -T-bill Limit Raised Again, Now BBD2.75 Billion

The limit on t-bills increased steadily from BBD1.0 billion in 2008 to BBD2.75 billion currently, having been raised by BBD1.0 billion recently to allow the government to finance its fiscal deficit of over BBD1.3 billion. The government plans to raise roughly BBD845 million domestically and USD187 million externally. Coincidentally, the Central Bank recently announced a new mechanism of influencing domestic interest rates, through maintaining the minimum savings rate on the savings accounts of individuals and non-profit entities, and intervening in the t-bill auction process to “influence the average rate at which the t-bills are sold”.

The Cayman Islands -New Government To Be Installed

The recent general election saw the opposition People’s Progressive Movement win nine out of eighteen elected seats, with political leader Alden McLaughlin set to be installed as Premier. Former Premier McKeeva Bush has been formally charged with eleven offences including theft. The 2012 Foreign Trade statistics report reveals that the trade deficit remained fairly stable in 2012, after having deteriorated in 2011. Tourist arrivals increased 5.7% y-o-y for January-February 2013, after having grown by 4.1% for 2012, mainly on 12.5% higher arrivals from “other” nations (i.e. non-US, Canada and Europe).

Curacao And St. Maarten -Reserves Continue To Slide

Central Bank Net Official Reserves continue their monthly downward revision, falling to NAf1,381 million in March 2013, with projections to decline further to NAf1,308.6 million in May 2013, which we estimate would bring import cover to just over two months. Tourist arrivals increased by 7.5% in Curacao and 7.6% in St. Maarten in 2012, based in higher inflows mainly from Canada and “other” nations. For January-February 2013, Curacao saw a 4.6% y-o-y increase in visitor arrivals.

Dominican Republic -2012 FDI Exceeds Pre-crisis Levels

ECLAC’s FDI report puts inflows of FDI at USD3.6 billion in 2012—an increase of 59% over 2011. The Central Bank recently cut the policy rate by 75bps to 4.25%, in the face of inflation at 4.9% y-o-y in April 2012 and weaker growth at 0.3% in Q1 2013, y-o-y. January-February 2013 saw a 3.4% decline in visitor arrivals, versus a 5.9% overall increase in 2012 on higher USA and “other” vacationers.

Eastern Caribbean -FDI Well Below Pre-crisis Levels

A recent IMF mission to Antigua and Barbuda concluded that the government had made “excellent progress” in achieving macroeconomic stability and debt sustainability via critical institutional and structural reforms, such that the fiscal surplus far exceeded targets, and growth has been restored. Another IMF Mission recently visited St. Kitts and Nevis, and estimated that the economy contracted by 1.3% in 2012 amid disinflation and a stronger fiscal balance than expected. Growth of 2% is expected in St. Kitts and Nevis this year based on tourism and construction activity, according to the IMF. ECLAC’s FDI report shows persistently low and declining levels of FDI in the Eastern Caribbean over the past four years, contrary to most other Caribbean nations.

Guyana -Robust FDI Inflows Well Above Pre-crisis Levels

ECLAC’s FDI report reveals steadily increasing levels of FDI in Guyana that are the region’s highest relative to GDP, and which seem to have been largely immune to the great recession. Visitor arrivals in Guyana grew by 17.2% from January-November 2012 y-o-y (the second fastest growth rate in the Caribbean) to reach 161K visitors, mainly from the USA and “other” nations.

Jamaica -Recession And IMF Programme Underway

The long anticipated IMF agreement was finally signed, and the first drawdown of USD207.2 million was received. Fiscal performance surpassed expectations, but the economy contracted by 0.5% and y-o-y inflation reached 9.1% for the fiscal year ended March 2013. Unemployment remains elevated at 14.2% despite more jobs being created. Visitor arrivals increased by 1.8% in 2012, driven mainly by higher levels of USA and “other” vacationers. For the first time since 2008, Jamaica saw growth in FDI inflows in 2012, according to ECLAC’s FDI report, but remains well below pre-crisis levels.

Suriname -S&P Assigns A Positive Outlook To Its Rating

S&P recently revised the outlook on Suriname’s BB- sovereign credit rating to positive from stable, based on the expectation that high levels of investment in mining and energy sectors will lead to better growth prospects and healthier fiscal and external balances. ECLAC’s FDI report reveals that FDI levels have stabilized, following several years of net-outflows. Visitor arrivals increased by 8.4% in 2012, with growth coming mainly from Canada and “other” markets.

Trinidad And Tobago -Core Inflation Edges Upwards

An overall disinflationary trend remains intact, though core inflation has increased by 30bps since February 2013. The Central Bank has left the repo rate unchanged, but some tightening is underway, as a TTD1.0 billion 7-year bond was issued to absorb some of the TTD6 billion excess liquidity. Apart from mortgages, credit growth continues to be subdued. GDP growth of almost 1.5% was recorded in H2 2012, bringing overall growth to 0.2% in 2012, versus a contraction of over 2.5% in 2011. According to ECLAC’s FDI report, FDI inflows increased by 70% in 2012, but remain below pre-crisis levels.

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