BASSETERRE, St. Kitts - THE United Nations World Economic Situation and Prospects (WESP) Report for 2014 stated that the Caribbean region is still struggling from the financial crisis of 2008 and its economy is expected to expand by a meager 2.4 percent for 2014, which is below that of previous years.
Based on the report, this situation is a result of the subdued demand in the tourism sector because of a very slow recovery by economies in the United States and Europe.
“Weaker commodity prices have also affected exporters in the Caribbean, while domestic demand has been relatively weak following fiscal austerity measures and high levels of unemployment. However, the anticipated economic recovery in developed economies is expected to boost the tourism sector and have indirect spillover effects into other sectors, bringing the sub-region’s GDP growth to 3.3 percent and 3.8 percent in 2014 and 2015, respectively,” the report states.
However when it comes to inflation, this is expected to remain very stable throughout the Latin American and Caribbean region even though it saw a slight increase in the previous calendar year.
“The overall inflation rate was 6.7 percent, up by 0.7 percentage points comparatively to 2012. This slight increase is the result of higher food prices and expansionary monetary policies in some countries since the second half of 2012. Venezuela had the highest inflation rate in the region in 2013, as a result of sharp currency devaluation and increased supply constraints in certain products. For the rest of the region, inflation is expected to remain relatively stable in 2014.”
The WESP report has however warned that Latin America and the Caribbean face higher economic vulnerability as countries are experiencing twin deficits - fiscal and current account.
Explaining what the two deficits mean, the report said: “The fiscal deficit refers to when government expenditure exceeds the revenue it generates, while the current account deficit is mainly caused by the value of goods and services that a country exports being less than the value of those that it imports. Under these circumstances, Governments are dealing with conflicting demands. Market pressure will require strengthening of fiscal accounts, while social pressure for better public services is growing, as witnessed by large-scale protests in some countries of the region.”
It also said that many countries, such as Argentina, Chile, the Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico, Panama and Peru, implemented fiscal reforms in 2012-2013 in an attempt to broaden the tax base and to increase fiscal revenues, and that these reforms were crucial but not yet sufficient to offset the loss in public revenues due to slower economic growth.
Meanwhile, the report states that the Latin American and Caribbean region’s current-account deficit was expected to widen in 2013, owing mainly to the deterioration of the balance of trade in goods, as imports have increased faster than exports in the past few years and eroded the trade surplus.
Additionally, the sluggish performance of the inbound tourism market had worsened the deficit of trade in services, particularly in the Caribbean.
In 2014 and 2015, as developed economies are expected to perform better economically, demand for Latin American and Caribbean exports should generate higher revenues and narrow current-account deficits in the region.
