The Global Economic Outlook and the Growth Prospects for the Caribbean

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The Global Economic Outlook and the Growth
Prospects for the Caribbean
David Vegara
Western Hemisphere Department International
Monetary Fund Trinidad and Tobago, September 8,
2011
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Todays presentation will focus on

• World Economic Outlook
• Risks to this outlook
• Implications for growth in the Caribbean
• Necessary conditions for growth to resume in
  the region
• The Fund as a partner in the Caribbean

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The global economy continues to grow, yet not
enough...
...with growth led by emerging markets
as growth in AEs slows
Sources World Economic Outlook database, Haver,
J.P. Morgan and IMF staff calculations.
¹Average of
Brazil, India and Russia.
²Average of Euro Zone, Hong
Kong, Japan and United Kingdom.

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The U.S. recovery has slowed, reflecting
temporary factors and persistent fragilities in
household balance sheets...

• further exacerbating the weaknesses in the
  housing and jobs markets

...amid deteriorating investors and consumers
confidence.
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Downside risks now dominate the outlook.
heightened concerns about sovereign risks in the
euro area and negative feedback loops on banks
have unnerved markets
and flows to EMs continue but volatility has
increased
Sources Bloomberg Datastream Haver EPFR
Global and Morgan Stanley
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Caribbean economies are heavily dependent
on the performance of their major trading
partners
reflecting high dependency on these markets for
international trade (particularly tourism).
indicated by the high correlation between
Caribbean output and that of its major trading
partners
Tourism Dependency (Average Tourism Receipts,
2000-2009, as of Exports)
Source World Economic Outlook, IMF
Source World Economic Outlook, IMF 1/ Weighted
average of United States, United Kingdom, Canada
and the Euro Area 2/ Un-weighted average of full
members of CARICOM (excluding Haiti and
Montserrat)
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Caribbean economies are heavily dependent
on the performance of their major trading
partners
and financial flows to finance current account
deficits.
it also reflects the high flow of remittances
Source World Economic Outlook, IMF
Source World Economic Outlook, IMF
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The crisis therefore had an overwhelming
impact on the region, negatively affecting
virtually all sectors...
as a result, deficits widened and public debt
levels rose.
particularly tourism
Tourism Arrivals and Spending, 2000-2010 (2000100
)
The Caribbean Primary Balance and Public Debt in
percent of GDP
Source World Economic Outlook, IMF
Source World Economic Outlook, IMF
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Necessary conditions for growth to resume in
the region...

• Continue with policies of fiscal consolidation as
  markets are increasingly worried about high-debt
  sovereigns.
• Take care of spillovers have an overall
  credible fiscal strategy both at the individual
  and regional level (ECCU).
• Move quickly to address any lingering financial
  sector issues
• Bring regulation and supervision of non-bank
  financial sector up to international best
  practices standards.
• Rethink the growth model in the region (shift
  growth from public sector to the private sector
  driven, improve the business environment).

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The Fund is a partner in the region...

• The Fund has intensified it work in the region
• Engaged close policy dialogue with the
  authorities in the region,
• Stepped up its technical assistance (including
  via CARTAC) and
• Stands ready to provide financial support, if
  necessary.
• Fund facilities
• Emergency Financing Mechanism
• Short-term Liquidity Facility
• Stand By Arrangements
• Revamped Exogenous Shocks Facility
• PRGF (including augmentation - Grenada, Haiti)

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The Global Economic Outlook and the Growth
Prospects for the Caribbean
Thank you