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Growth in the Latin American and Caribbean (LAC) region is expected to register an impressive 5.7 per cent this year, slowing to 4.5 per cent in 2011.
This was noted by the International Monetary Fund’s (IMF) Senior Advisor for the Western Hemisphere Department, Mr. Gilbert Terrier, at the launch of the Regional Economic Outlook, held at the Bank of Jamaica Auditorium in Kingston, recently.
Focusing on the Caribbean, Mr. Terrier said that while little or no growth is expected this year, expectations are that the regional economy would improve in 2011. He attributes the Caribbean’s sluggish performance to weak import demand from the more advanced economies, slow recovery in remittances, and subdued tourism flows.
“This year, growth will be close to zero, but next year, it could yield some two per cent, and this is a positive development,” he said.
The Regional Economic Outlook reflected that observation. It stated that after declining by more than three per cent in 2009, real Gross Domestic Product (GDP) for the Caribbean is projected to post only marginal gains in 2010, driven largely by the recovery of tourism.
“The tourism sector in the Caribbean is expanding very slowly, in line with the tepid recovery in employment conditions in advanced economies. During the first half of 2010, tourist arrivals in the Caribbean increased by an average of 3.5 per cent, compared with the same period last year. This was led by increased arrivals from the United States and Canada, against continued declines from Europe,” the document notes.
However, the Report indicates that the recovery of tourism has been uneven, with the smaller islands in the Caribbean experiencing a sharper and more prolonged decline in tourist arrivals, than some of the larger islands. The IMF Advisor explained that a closer look at the data suggests that destinations that significantly reduced hotel prices following the global financial crisis, experienced milder declines in arrivals.
For example, hotels in the Dominican Republic and Jamaica lowered prices more than other countries and did not experience a decline in the number of tourist arrivals. In contrast, hotels in the Bahamas and Barbados were more reluctant to reduce prices and their tourist arrivals fell. “What we have found is that tourism is highly sensitive to prices, and Jamaica was able to lower prices by five per cent, which increased its tourist arrivals,” he said.
Mr. Terrier also observed that over the last 40 years, the Caribbean had grown by only 2.2 per cent, while Latin America grew by 3.4 per cent. “The Caribbean’s GDP per capita relative to that of Latin America’s, has also declined. Taking a look at the Caribbean’s productivity compared to other regions in the world, the picture is equally not a good one. Of the 30 most indebted countries in the world, Caribbean countries make up 15 of them,” he said.
The Report concluded that: “Boosting competitiveness and growth over the medium term remains a key policy challenge. For the whole region, improving productivity will require sustained structural reforms, including enhancing the role of the tourism sector. Labour markets will need to be more flexible to allow the region to better react to external shocks”.
It cited the Caribbean’s over-reliance on the US economy, making the region highly susceptible to the unemployment and other negative economic developments in that country. This is in addition to the recently announced measures by the United Kingdom to contain public expenditure and slash some half a million public sector jobs. Potentially, these developments can negatively impact economies with a high reliance on remittances, and tourism.
Given these persistent challenges the IMF report reflected on the extent to which Caribbean countries need to open themselves up to tourism from other parts of the world, such as South America and Asia.
The report also cautioned that: “With no space to adopt countercyclical policies, the region would have to adjust to a more negative scenario by focusing any expenditure on protecting the poorest households.”