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IMF gives positive outlook for the Caribbean despite Tough Recovery, Uncertainties

Featured  Street vendors in Rio de Janeiro, Brazil: While growth is accelerating in some parts of Latin  America, the recovery has  become tougher for some of the largest economies. (photo: Oliver Wintzen/Robert Harding/Newscom) Street vendors in Rio de Janeiro, Brazil: While growth is accelerating in some parts of Latin America, the recovery has become tougher for some of the largest economies. (photo: Oliver Wintzen/Robert Harding/Newscom)
WASHINGTON, DC, July 24, 2018 - Despite protracted uncertainty related to trade and immigration issues, the International Monetary Fund, says supported by higher U.S. growth, economic prospects for the Caribbean are generally improving.

In its ‘Outlook For The Americas’ report released yesterday, the IMF says “reconstruction from the devastating hurricanes of 2017 in tourism-dependent countries has been largely delayed so far, but is expected to pick up in 2019.”

However, the report observed “rising commodity prices are projected to lead to moderate growth for commodity exporters in 2018 and 2019.”

In Central America and the Dominican Republic, robust U.S. growth and higher remittances associated with the uncertainty about future U.S. migration policies continue to underpin a strong growth performance in 2018.

Nonetheless, political uncertainty in Nicaragua and temporary disruptions in the construction sector in Panama weigh on domestic demand, leading to a small downward revision of the regional growth in 2018 to 4 percent.

The report notes that “Mexico’s outlook continues to be clouded by the protracted uncertainty related to the trade relationship with the United States in the absence of an agreement on the renegotiation of NAFTA.”

“GDP growth in 2018 is still expected to accelerate compared to last year, supported by higher growth in the United States and on account of a stronger-than-expected performance in the first quarter of the year.

“However, growth for 2019 was revised down to 2.7 percent to reflect the impact of the prolonged trade-related uncertainty on investment and, to a lesser extent, private consumption.

“Inflation is expected to continue to fall in 2018, as the central bank maintains a tight monetary policy stance. A clear commitment to fiscal responsibility and the continuing reduction of the public debt ratio by the newly-elected administration will be crucial for preserving macroeconomic and financial stability.”

Growth projections460While economic activity in Latin America continues to recover, the International Monetary Fund, IMF says the recovery has become tougher for some of the largest economies, because market pressures at the global level have been amplified by country-specific vulnerabilities.

The IMF Outlook for the Americas projection says “following the pickup in domestic demand led by consumption in 2017, investment is finally gathering strength.

Overall, the region is expected to grow by 1.6 percent in 2018 and 2.6 percent in 2019, up from 1.3 percent in 2017 but down from our April projections. Growth momentum, however, is more differentiated than projected in April.”

The report noted that while growth in the United States continues it’s strong pace, benefiting the economies in the region with close ties to it, and higher commodity prices are providing support for the region’s commodity Exporters, conditions for global demand and finance have become more fraught.

“The upturn in global demand is not as strong as expected in all countries, which has Increased downside risks to the region’s external demand. At the same time, global financial conditions, while still accommodative overall, are gradually tightening,” the IMF report says.

“Financial market pressures have been particularly pronounced in countries with weaker domestic economic fundamentals,or because of uncertainty about politics and policy. Escalating trade tensions and conflictsare increasing downside risks to the current outlook, includingthrough theirpotential impact on uncertainty and investment,” the IMF noted.

The report pointed out that “some commodity exporting countries are enjoying a recovery in business and consumer confidence, feeding into higher domestic demand. Also in some countries internal uncertainty has recentlydiminished, if not dissipated, with the end of their electoral cycle.”

It however cautioned, “nevertheless, domestic demand is expected to weaken in some large economies, reflecting policy uncertainty related to upcoming elections or effects of the near-term policy tightening. At the same time, monetary policy support going forward is likely to be more limited as many central banks in the region have suspended their monetary policy easing cycle.“

As it relates to Venezuela, the IMF said that country "remains stuck in a profound economic and social crisis. Real GDP is projected to fall by about 18 percent in 2018—the third consecutive year of double-digit declines in real GDP—driven by a significant drop in oil production and widespread micro-level distortions on top of large macroeconomic imbalances.

"We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money, which will continue to fuel an acceleration of inflation as money demand continues to collapse. We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s," the report predicted.

"The collapse in economic activity, hyperinflation, and increasing deterioration in the provision of public goods (health care, electricity, water, transportation, and security) as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries," the IMF report declared.

Last modified onTuesday, 24 July 2018 10:32
  • Countries: Caribbean

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