Caribbean West Business Projection Industry Update Quarter 2 2009

• Publication date: March 2009

Braced For Recession In 2009 The Caribbean is facing its toughest test since the post-September 11 tourism slump, and we caution that the region is unlikely to escape an economic contraction in 2009. We are projecting regional real Gross Domestic Product growth of negative 0.6% this year, but warn that the risks remain firmly skewed to the downside should global demand destruction hurt the Caribbean's key markets - specifically, financial ser...

Braced For Recession In 2009
The Caribbean is facing its toughest test since the post-September 11 tourism slump, and we caution that the region is unlikely to escape an economic contraction in 2009. We are projecting regional real Gross Domestic Product growth of negative 0.6% this year, but warn that the risks remain firmly skewed to the downside should global demand destruction hurt the Caribbean's key markets - specifically, financial services, real estate and tourism - more than currently anticipated. As economic activity cools and unemployment rates start to head higher, there is a risk of widespread public disgruntlement, which could lead to increasing protests, provoke an already-fragile security environment and erode the popularity of governments across the board. In this latest Business Projection Report, we assess which countries are likely to suffer most as a result of the acute external headwinds, and which are best placed to recover once the global dust settles.

With none of the major countries in the Caribbean facing general elections this year, we expect a measure of political stability in 2009. Having said that, local authorities will have their work cut out to curb the growing violent crime problem that has plagued the region in recent years. According to preliminary figures, Jamaica and Trinidad & Tobago both suffered their bloodiest year on record in 2008, registering homicides of 1,600 (62 per 100,000) and 549 (42 per 100,000) respectively. While both governments have outlined a more dynamic security policy framework going forward, we believe that the crime issue will remain a major problem for policymakers going forward.

The economic outlook in the Caribbean is gloomy, with much of the region staring down the barrel at recession. Few countries, if any, will remain unscathed, with only Trinidad & Tobago and the Dominican Republic out of our 'big six' (including Puerto Rico, Guyana, Barbados and Jamaica) likely to register positive growth in 2009. The main risk is a deeper and more protracted recession in the US and UK - two developed world industry s which are vital for the influx of tourism, remittances, and financial services earnings into the region.

The government bailout of Trinidad & Tobago's financial giant CL Financial Group in late January has sent shockwaves across the Caribbean financial system. Given the exposure of the firm to a wide array of markets across the regional economy, the resilience of the Caribbean banking segment could come under pressure in 2009. Add to the mix the likely weakness of offshore financial hubs (such as the Cayman Islands) due to the precarious position of developed world hedge funds, and we caution that it could be a tumultuous year for Caribbean finance in 2009.

Business Services Industry in China

BMI Ratings
BMI Risk Ratings – Latin America Data s..........5
Chapter 1: Country Reports 7
Dominican Republic 7
Political Outlook........ 7
Recession On The Horizon
The Dominican Republic’s economy is starting to show signs of weakness, signalling that a sharp deceleration in growth
may be afoot.
Economic Outlook...... 8
Major Police Cleanup Underway
An ongoing clean-up of the higher ranks of the Dominican Republic’s police and naval forces is revealing ever more
worrying details about the extent to which senior officials are involved in drug trafficking operations.
Key Segments .... 9
Data : DOMINICAN REPUBLIC: HIST ORICA L DATA & FORECASTS ......9
Jamaica..... 11
Political Outlook......11
Security Situation Key To Investment Outlook
Minister of Foreign Affairs and Foreign Trade, Ken Baugh, has suggested that Jamaica could become the business and
industrial hub of the Caribbean with the help of the opportunities presented under the recently-signed Economic Partnership
Agreement (EPA) with the European Union.
Economic Outlook....12
External Debt: On Life Support
We expect Jamaica’s foreign exchange reserves to continue falling as remittances and tourism revenues contract.
Key Segment ....13
Data : Jamaica Historical Data & Projections .... 13
Puerto Rico 15
Political Outlook......15
Could The Commonwealth Lose Investment Grade?
A bleak fiscal outlook, an excessive public debt burden and hostile financing conditions could provoke a downgrade in
Puerto Rico’s credit rating to ‘junk’ status in 2009.
Economic Outlook....16
Unemployment On The Rise
Suffering the fall-out from a three-year long recession, Puerto Rico’s unemployment rate hit an 11-year high of 13.1% at
the end of 2008.
Key Segment ....17
Financials: Don’t Bank On Comeback In 2009
Puerto Rico’s banks took a beating in 2008 due to the double impact of the local recession and US financial storm.
TABLE: PUERTO RICO: HISTORICAL DATA AND FORECASTS ...17
Chapter 2: Country Summaries.... 19
Bahamas......19
TABLE: THE BAHAMAS: HISTORICA L DATA & FORECASTS ..... 19
Belize20
TABLE: BELIZE: HISTORICA L DATA & FORECASTS ...... 20
Bermuda ......21
TABLE: BERMUDA HIST ORICA L DATA & FORECASTS . 21
British Virgin Islands ...........22
TABLE: BRITISH VIRGIN ISLANDS: HIST ORICA L DATA & FORECASTS ........... 22
Cuba..23
Data : Cuba Macroeconomic Data & Projections .......... 23
Haiti..24
Data : Haiti Historical Data & Projections .......... 24
Turks and Caicos Islands .....25
TABLE: TURKS & CAIC OS ISLANDS: HISTORICAL DATA & FORECASTS ......... 25
Chapter 3: Special Report. 27
China.27
A Seismic Upheaval In 2009?
One of the biggest – and least discussed – ‘wild cards’ that could rear its head in 2009 is dramatic political
upheaval in China.
United States ..........30
Europe...........34
Big Trouble For European Banks In 2009
The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
combine to spell trouble for the financial services segment in 2009.
Data : Banks’ Leverage Ratios...... 34
Data : Assets As % of Home Country Gross Domestic Product .......... 35
Data : Assets As % of Home Country Gross Domestic Product When Eurozone Is Considered ‘Home Country’ ... 36
Data : Exposure As % of Total Exposure To Region....37
Data : Banks’ Foreign Exposure (US$ mn)......... 38
TAB LE: Exposure As % of National Gross Domestic Product .... 38
World 41
Data : World Assumptions........... 41
Data : GLOBAL & REGIONAL REAL Gross Domestic Product GROWT H, % chg y-o-y...... 42
Economic Activity ....42
Data : Developed States, Real Gross Domestic Product Growth Projections ........ 43
Monetary Policy .......44
Data : Emerging Industry s, Real Gross Domestic Product Growth Projections ..... 44
TABLE: DEVELOPED MARKET EXCHANGE RATES ....... 44
Commodities ...........45
TABLE: EMERGING MARKET EXCHANGE RATES ......... 45