WASHINGTON, DC – THE International Monetary Fund (IMF) says its economic outlook for the Caribbean remains largely in line with its April projections, but warned that the ongoing conflict in the Middle East is increasing risks for the region, particularly through higher energy and food prices.
The geopolitical tensions involving Israel, Iran and the United States have fueled volatility in global energy markets, with the temporary disruption of shipping through the Strait of Hormuz driving up oil prices and adding pressure to inflation worldwide.
Following the release of its updated World Economic Outlook (WEO), SKNVibes News asked the IMF how the latest developments could affect Caribbean economies.
An IMF spokesperson said the impact would vary across the region. "Higher oil and food prices are expected to affect the region unevenly, with tourism-dependent economies facing rising import costs and inflation, while commodity exporters benefit from stronger terms of trade."
According to the IMF, growth in tourism-dependent Caribbean economies is projected to slow to 0.9 percent in 2026 before recovering to 2.5 percent in 2027. Commodity-exporting economies, excluding Guyana, are expected to see growth rise to 1.5 percent in 2026 and 3.3 percent in 2027, supported largely by higher oil prices.
The Fund also expects inflation across the region to accelerate to 6.6 percent, warning that the balance of risks remains tilted to the downside.
A slowdown in key tourism source markets—particularly the United States—could further dampen visitor arrivals, while higher import costs and tighter global financial conditions are expected to place additional strain on economic growth and external balances. The IMF also pointed to continued geopolitical uncertainty and the Caribbean's vulnerability to natural disasters as ongoing risks.
Globally, the IMF forecasts economic growth of 3.0 percent in 2026 and 3.4 percent in 2027, broadly unchanged from its April outlook on a cumulative basis.
Speaking during the IMF's World Economic Outlook press briefing, Deputy Director of the Research Department Petya Koeva Brooks said the global economy is expected to follow a V-shaped recovery, with weaker growth this year compared to pre-war forecasts before rebounding next year.
However, she noted that inflation remains a concern.
"Our global headline inflation forecast has been revised upward to 4.7 percent this year, while our core inflation forecast is broadly unchanged. Put simply, the disinflation trend that has been in place since early 2024 has stalled," Brooks explained.
Despite the uncertainty, she said the global economy has proven more resilient than initially feared. A sharper spike in oil prices was avoided through inventory drawdowns, increased oil production outside the Gulf region, and measures that helped reduce demand. She also pointed to growing renewable energy use and lower energy intensity across many economies as factors that have helped cushion the shock.
While financial conditions tightened sharply in April, Brooks said they have since eased and remain supportive by historical standards.
Asked what advice the IMF has for small island developing states with limited fiscal space and heavy dependence on imported fuel, the spokesperson stressed the importance of targeted government support.
"Given limited fiscal buffers in many Caribbean countries, fiscal policy should prioritize protecting the most vulnerable through targeted and temporary measures, while avoiding broad-based interventions that distort price signals," the spokesperson told SKNVibes News.
The IMF cautioned that governments should not delay fiscal consolidation, arguing that rebuilding financial buffers is essential given high public debt, continued global uncertainty and the region's exposure to natural disasters.
It also recommended strengthening fiscal frameworks, improving revenue collection and making public spending more efficient to increase governments' ability to respond to future economic shocks.
"Governments should better target social spending and prioritize high-return public investment," the spokesperson added.
The IMF reaffirmed that it remains committed to supporting Caribbean countries through policy advice, technical assistance and financing where appropriate, in partnership with other international institutions.
