Cristina Savescu, World Bank Economist, on Caribbean Growth
Earlier this week, the World Bank released a report on growth prospects for Latin America and the Caribbean. That macro region had three distinct areas – Latin America itself, which is in the midst of an economic boom, Haiti and the Dominican Republic, which are both performing strongly, albeit for different reasons, and a group of countries in the English-speaking Caribbean. The last of the three has seen weaker growth as it struggles to emerge from the global downturn. We talked to Cristina Savescu, a World Bank economist in the organization’s Development Prospects Group, who contributed to the report. Caribbean Journal talked to Savescu about the strength of the Dominican Republic, hope for the Jamaican market, and why Latin American growth has not yet trickled over to the Caribbean.
What is the outlook generally for the Caribbean?
Basically the outlook for the Caribbean economies remains pretty weak for the forecast horizon. In the Dominican and Haiti, we will likely see strong growth. Excepting those countries, the region’s growth will remain tepid at around 2.2 percent in 2011, accelerating slightly to 2.6 percent in 2012 and 2.8 percent in 2013. Bear in mind that these follow two years of a recession in this region. The reason for excluding Haiti is that obviously we have a very strong growth projection for Haiti due to reconstruction efforts. The Dominican Republic, unlike the other Caribbean economies, has performed relatively strongly, but we are projecting deceleration from 7.8 percent to 5.1 percent in 2011 for the Dominican Republic and growth trending lower, over the forecasting horizon, to 4.3 percent in 2012.
Why has the Dominican Republic outperformed the rest of the region?
The Dominican Republic, despite its dependence on the U.S. economy for tourism, remittances and investment, has performed better than the rest of the Caribbean. First of all, the domestic dynamics were more favorable in the Dominican Republic relative to the rest of the Caribbean. There was strong growth resulting from stronger domestic demand. Going forward, the projection is for strong performance in the mining sector, due to the restarting of ferrous nickel mining operations, which will bolster growth, and also due to the start of gold mining. But domestic demand in the Dominican Republic will be relatively stronger than the rest of the Caribbean. The region, especially the Eastern Caribbean, has been affected by weak performance in the tourism sector and weak remittances, due to soft labor markets, in particular in the U.S. Unemployment remains high for the high-income countries, and it will come down only gradually over the forecasting horizon, which will have negative consequences for the growth in tourism and remittances.
Are there any countries whose potential stands out?
Some of the larger economies have been stronger, or have better prospects for tourism. So in Jamaica, for example, the recovery has started earlier in Jamaica, in tourism, but overall the prospects are pretty weak for the Caribbean, excluding the Dominican Republic.
Jamaica’s economy was mentioned specifically in this week’s report. What will drive Jamaica’s economy going forward if it is to recover?
Most likely, stronger demand for aluminum, for example, will be a positive for Jamaica. But Jamaica is coming out of three years of contraction in GDP, so in that case the tax revenue base has been weakened significantly. Jamaica is also complicated by a heavy public debt burden. The growth in demand, in a more positive note, will be fueled by the mining and tourism sectors.
Latin America is performing extremely well. Why hasn’t that growth trickled over more to the Caribbean, and what can the Caribbean due to capitalize on it?
The growth in Latin America has been strong. The region has rebounded strongly from the crisis, in particular, from the very strong performance of some of the commodity exporters of the region. In Peru, Argentina and Brazil, growth was strong. The Caribbean has yet to diversify, for example, its tourism industry to attract tourists from these drastically growing economies. So there is potential for growth in the future, for tapping more into those markets. And of course, they have the challenge of further diversifying their economy more generally, not just the tourist sector. I know that many of the Caribbean countries are trying to develop their offshore financial services, but there are some limitations in that respect.