Should the Caribbean be upbeat about its 2017 economic prospects?
Global risks and uncertainties in 2017 will have diverse effects on the region’s economic performance. Sluggish growth of the global economy, which has now lasted for over a decade, with average growth of 2.5 per cent in the period 2013-2016, will continue: the average projected for 2017-2018 is 2.8 per cent.
This slack performance has been accompanied by slowing productivity – which shows a growth rate of around one per cent – and declining rates of growth in global investment and trade.
The positive effects of an upturn in 2017 for global trade, which should grow by between 1.8 per cent and 3.1 per cent, could be overshadowed by the mounting protectionism seen since the United Kingdom voted to leave the European Union.
In financial markets, the expected normalisation of interest rates could increase uncertainly and financial volatility, given the dynamics of financial asset prices. Although the likelihood remains that interest rate rises will be gradual, this could still affect financial flows to emerging markets, including those of Latin America and the Caribbean.
Concerns also persist over the financial stability of economies in which credit, especially in the form of international bond issues, has grown strongly, since these could be hurt by higher interest rates on dollar liabilities. This is in addition to concerns over the position of a number of financial institutions in developed countries, chiefly in the euro zone.
To these complex financial and economic growth dynamics have been added uncertainties that could have major impacts on economic performance in the coming years.
Recent protectionist trends have raised new uncertainties and risks regarding the future of the global economy. These trends reflect the mounting tensions and difficulties in reconciling and coordinating national policy emphases and aims with the institutional arrangements governing international movements of goods and services, finance and capital, technology and migration in a globalized world.
As in preceding years, global economic conditions will have different effects on the various countries and sub regions of Latin America and the Caribbean, and will sharpen sub regional differences by the production and trade orientation of their economies.
Although the protectionist tendencies emerging in the United States will have global and regional effects, the possible renegotiation of North American Free Trade Agreement and other trade agreements, as well as uncertainty over the dynamics of monetary transfers from migrants, will have significant effects in particular on Mexico and Central America, which export most of their manufactures and services to the US.
Regaining a growth path will require reversing these trends, with an emphasis on investment, which in turn will require strong mobilisation of financial resources. The growing difficulties faced by the countries of the region in financing countercyclical fiscal policy, added to their status as middle income countries – which hinders their access to external concessional financing and to international cooperation funding – mean that mobilising domestic and external resources to finance investment must be a policy priority for the countries in the near term.
Unlike in 2016 when the region contracted by 1.1 per cent, and despite complex external conditions and a number of risks, the region’s economy is expected to switch direction and return positive growth of 1.3 per cent. As in 2016, the weighted average growth figure masks different growth dynamics between countries and subregions. Positive growth is projected in 2017 for South America, at 0.9 per cent, and for the English-speaking Caribbean, at 1.3 per cent.
