Asia recovers, Caribbean struggles
Dennis Morrison, Contributor
Any doubt that the economic pendulum has swung in favour of countries in the Asian region must now be fast diminishing in the face of the rapid recovery of economies in that part of the world from the global recession. By contrast, Caribbean countries that were earlier regarded as the most dynamic, middle-income developing economies are still experiencing the delayed impact of the global recession. And according to regional central banks, most of these countries are likely to continue to feel the effects of the recession for the rest of this year and into 2011.
A major obstacle to the return of significant growth in the Caribbean is, of course, the lacklustre pace of recovery of the region's major trading partners. They are also constrained by small domestic markets, unlike Latin American countries whose recovery from a decline of 2.5 per cent in 2009 to growth of 2.9 per cent in 2010 is being propelled by domestic demand. Caribbean economies that were fiscally stronger and therefore able to apply stimulus measures will, however, rebound faster.
Trinidad and Tobago, the star performer of the Caribbean in the last decade, is set to lead the regional recovery process. First, it entered the crisis with a strong fiscal surplus that allowed it to implement stimulative programmes in infrastructure and housing. Second, its economy, which is dominated by the energy sector, is also being assisted by rebounding energy prices that exceed the forecast of a year ago. Thus, GDP growth is projected at two per cent for 2010, after an estimated decline of three per cent in 2009, with the higher energy prices contributing to increased foreign-exchange earnings and stronger fiscal performance.
In addition to the stimulus programmes, the central bank of Trinidad and Tobago is projecting that declining bank-lending rates and inflation should spur private-sector activity during the course of this year. It expects that construction and other projects, which had been delayed because of the downturn in the Trinidadian economy, will get under way this year. The country's solid foreign reserves, which stand at over US$8 billion, provide a solid foundation to support accelerated economic growth.
Barbados, another of the region's better-performing economies, has been more badly affected, as output declined by 6.4 per cent in the first nine months of 2009. Most sectors performed poorly, and unemployment climbed to over 10 per cent. The tourism sector, which began to weaken from mid-2008 experienced a sharp fall in 2009, with stopover arrivals dropping by 8.7 per cent last year. The economic problems in the United Kingdom, the country's strongest tourist market, played a big role in the contraction of the sector.
The international business and financial-services sector, an important part of Barbados' economic expansion in the last decade, also witnessed a fall-off in activity related to the global financial upheaval. The construction sector witnessed the steepest decline, falling by 21.7 per cent, and this after a 5.8 per cent drop in the previous year. The fallout in this sector was directly linked to the downturn in remittances and reflected postponement of tourist real-estate development and other commercial projects. Though stimulus measures have been adopted by Barbados, the recovery of the economy is overwhelmingly dependent on external markets and demand, and so the recovery will be halting.
In the case of Jamaica, one of the four economic drivers, tourism, is slated for increased growth after showing resilience last year. The economic stabilisation in the United States (US), its main market, will help to strengthen performance in 2010, while the Canadian market is likely to remain buoyant. New resorts offering competitively priced products give Jamaica a distinct advantage among Caribbean destinations. The recently announced US travel advisory in relation to Mexico, an unfortunate development, may, however, divert tourist traffic to Jamaica.
The outlook for the other three pillars is less sanguine. Foreign-direct investment, which has boosted construction activity and demand for local services in recent years, is depressed and unlikely to show any significant movement this year. Several tourism projects have been put on hold, but some activity could be resumed before the end of the year. Remittances have shown some slight positive movement in the last three months, but given the state of the US economy are unlikely to rebound in the short term.
Global conditions in the mining sector are showing encouraging signs, but the local bauxite industry, the worst affected by the recession, is operating at the lowest output level since the mid-1980s. Both alumina and aluminium prices have climbed steeply since mid-2009, with consumption of aluminium recovering in most markets and moreso in China. Consequently, some of the plant capacity that was closed at the height of last year's crisis is reopening on a controlled basis, since inventories still remain high.
One company, UC Rusal, is reportedly planning to reopen one of its Windalco plants later this year, while Noranda Bauxite [formerly Kaiser] is resuming full production at its Discovery Bay operations. The contribution of the industry to investment activity and production is likely to be modest in the immediate period but has the potential for a robust recovery in the medium term.
Across the Caribbean, there has been a welcome significant reduction in the deficit on trade in goods and services. Since it is due to lower oil prices and declining economic activity, countries cannot regard it as a sustainable, positive shift in their economic competitiveness.
Dennis E. Morrison is an economist. Feedback may be sent to firstname.lastname@example.org.