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East Caribbean Business Forecast Report Q2 2011
Description:
No Easy Way Back From Recession!
Although most East Caribbean economies will exit recession in 2011, the region remains mired in weak
growth, as poor domestic demand combines with a still-subdued external picture. Huge fiscal deficits and
soaring debt piles remain the most pressing issues for many of the economies, but with import levels slowly
starting to tick up we caution that balance of payments stability is also at risk over the medium term. In this
Q211 East Caribbean Business Forecast Report, we identify which countries are particularly at risk of a
prolonged period of low growth, and assess the progress of policies intended both to stimulate growth and
reduce fiscal imbalances.
In November, the publisher outlined our scepticism about government plans to boost growth in Trinidad &
Tobago’s non-energy sector, and recent data from the central bank reaffirms these doubts. We are
particularly concerned about the state of domestic creditors, who appear unwilling to extend the capital
required to help stimulate private consumption and fixed investment. This means the onus will fall on either
the government or foreign investors, and as we doubt either will be willing to do this over next 12 months,
our outlook for domestic economic activity remains weak.
While much of Latin America is revelling in the fastest growth rates in decades, Barbados continues to feel
the effects of weak domestic and external demand. According to the central bank’s latest economic review,
real GDP growth contracted a further 0.9% year-on-year over the first three quarters of 2010, an especially
poor figure given the 4.7% y-o-y fall in output posted during the same period of 2009. With little sign that
activity picked up significantly over the final months of the year, we now believe the island suffered a second
consecutive year of recession in 2010, and are lowering our real GDP estimate to -0.5% from 0.5%. Our
forecasts for 2011 and 2012 remain unchanged at 1.3% and 1.6% respectively, reflecting our long-held view
that Barbados’ recovery will be both long and weak.
While we expect Guyana’s structural current account deficit to remain in place over the medium term, rising
exports and current transfers will contribute to a narrowing of the shortfall. That said, similarly to other
Caribbean states, Guyana will need to rely on consistently strong capital and financial surpluses in order to
fund these sizeable current account deficits. While it is difficult to forecast foreign direct investment and
portfolio inflows due to their volatile nature, we believe that Guyana’s business-friendly policies and
relatively untapped resource endowment makes the country attractive for further overseas investment,
reinforcing our view that the country’s overall balance of payments situation is encouraging.
Contents:
BMI Ratings
BMI Risk Ratings – Barbados
BMI Risk Ratings – Guyana
BMI Risk Ratings – Trinidad & Tobago
BMI Ratings – East Caribbean Table
Caribbean SWOTS
Executive Summary
No Easy Way Back From Recession
Regional Outlook
Monetary Policy
Inflation: Key Risks And Core Scenarios For 2011
Rising inflation will be a concern for economies across Latin America and the Caribbean in 2011
Sovereign Risk Rating
Fortune Favours The Frugal
Latin America’s sovereign risk credentials continue to improve, boosted by broadly strong growth rates and
high commodity prices
table: LATIN AMERICA SOVEREIGN RATINGS – EVOLUTION OF ABILITY TO PAY
table: LATIN AMERICA SOVEREIGN RATINGS – EVOLUTION OF WILLINGNESS TO PAY
Political Outlook
East Caribbean Economic Union: Not Plain Sailing
The adoption of a revised treaty establishing an economic union amongst the Organisation of Eastern
Caribbean states opens the door to much greater regional and political integration
Chapter 1.1: Political Outlook - Barbados
Domestic Politics
Fiscal Accounts On A Knife Edge
Barbados remains mired in fiscal challenges, with weak tax revenues undermining the government’s efforts
to return the fiscal accounts to something approaching an even keel
Chapter 1.2: Economic Outlook - Barbados
Economic Activity
Recession Now, Muted Growth Later
With Q310 real GDP data showing a further contraction in economic activity, we are now forecasting a
second consecutive year of recession in Barbados, with growth coming in at -0.5%, down from 0.5%
previously
Table: BAR BADOS – MACROECONOMIC DATA AND FORECASTS
Balance Of Payments
Threats Won’t Disappear
While an improvement on 2009, 2010 balance of payments data show that Barbados’ external accounts
remain under pressure
Chapter 2.1: Political Outlook - Guyana
Domestic Politics
Sugar Strikes Again
We believe the strike action surrounding Guyana’s sugar sector bodes ill for the country’s short-term political
risk profile and poses a risk to our economic growth projections
Chapter 2.2: Economic Outlook - Guyana
Balance Of Payments
Outlook Improving
While we expect Guyana’s structural current account deficit to remain in place over the medium term, rising
exports and current transfers will contribute to a narrowing of the shortfall
Table: GUYANA – MACROECONOMIC DATA AND FORECASTS
Fiscal Policy
Fiscal Dynamics To Improve
We are forecasting Guyana’s fiscal deficit to rise from 4.4% of GDP in 2009 to 4.5% in both 2010 and 2011,
before a gradual improvement in 2012 and beyond
Chapter 3.1: Political Outlook - Trinidad & Tobago
Domestic Politics
Government Support To Wane In 2015
We expect the furore surrounding the wiretapping scandal in Trinidad & Tobago to provide little additional
support to the government’s approval ratings
Chapter 3.2: Economic Outlook - Trinidad & Tobago
Economic Activity
Few Hopes For Non-Energy Sector
Trinidad & Tobago’s government will be unable to boost growth in the non-energy sector in 2011 and 2012,
as weak domestic credit expansion, fiscal consolidation and low FDI inflows cap the level of capital available
to local businesses and consumers
Table: BMI TRINIDAD CURRENCY FORECASTS
Exchange Rate Policy
TTD: No Devaluation, But Depreciation Likely
Bar the short-term selling pressure of the last few days of 2010, our projection that the Trinidad & Tobago
dollar would stay range-bound between TTD 6.2800/ US $ and TTD 6.3300/US $ has played out
Table: TRINIDAD & TOBAGO – MACROECONOMIC DATA AND FORECASTS
Chapter 4: Country Summaries
Anguilla
Table: ANGUILLA – MACROECONOMIC DATA AND FORECASTS
Antigua & Barbuda
Table: Antigua And Barbuda – Macroeconomic Data And Forecasts
Saint Lucia
Table: SAINT LUCIA – MACROECONOMIC DATA AND FORECASTS
St Vincent
Table: SAINT VINCENT – MACROECONOMIC DATA AND FORECASTS
Suriname
Table: SURINAME – MACROECONOMIC DATA AND FORECASTS
Chapter 5: BMI Global Assumptions
Global Outlook
Growth Solidifies, But Inflation Poses A Threat
table: Global Assump tions
TABLE : GLOBAL & REGIONAL REAL GDP GROWTH % CHG Y-O-Y
TABLE : CONSENSUS FORECASTS
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