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West Caribbean Business Forecast Report Q1 2014

  • November 2013
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

We anticipate a modest recovery in several West Caribbean economies,
although some will lag due to unfavourable fiscal dynamics. In
addition, while we expect the more diversified economies will benefit
from slightly stronger global growth over the coming quarters, those
most reliant on tourism and financial services are likely to continue
to struggle.
We see a high likelihood of a technical debt default by Puerto Rico
amid a double-dip recession and a delicate fiscal position. In the
actual event of a default, the lack of legal precedent generates
significant uncertainty of how it would unfold, though we see high
risk of substantial losses for investors.
Following indications that the Venezuelan government could alter the
terms of its Petrocaribe programme, which provides subsidised oil
to many Caribbean economies, we note that a dismantling of these
preferential terms would have a major impact on the region, sending
import bills much higher and potentially causing some countries to
default on their outstanding oil loans.

Table Of Contents

West Caribbean Business Forecast Report Q1 2014
BMI Ratings 6-9
Caribbean SWOTS 1
Executive Summary 13
Chapter 1 1: Political Outlook - Dominican Republic 15
Domestic Politics 15
Immigration Ruling To Stir Tesions With Haiti
We are downgrading our short-term Political Risk Rating for the Dominican Republic, as a recent ruling by the constitutional court that
could strip citizenship rights from Haitian immigrants will heighten tensions between the Caribbean neighbours That said, we expect
broad political stability to be sustained due to an improving economy and President Danilo Medina's resilient approval ratings
Chapter 1 2: Economic Outlook - Dominican Republic 17
Economic Activity 17
Recovery To Gain Traction
We expect economic activity in the Dominican Republic to improve over the coming years, driven by a growing mining sector and a
gradual acceleration of private consumption growth Following real GDP growth of 1 6% year-on-year in H113, we forecast growth of
2 5% in 2013 and 3 7% in 2014
table: Real GDP Growth By Selected Sectors, % chg y-o-y (YTD) 17
table: GDP BY EXPENDITURE, REAL GROWTH % 18
Chapter 2 1: Political Outlook - Jamaica 19
Domestic Politics 19
Rising Violent Crime To Challenge Government Further
Apart from the substantial structural reforms that the Jamaican government is currently undertaking to put the country on a more
sustainable fiscal path, policymakers will also have to grapple with rising crime, which due in large part to the uptick in drug trafficking
through the Caribbean, threatens to reverse recent security gains on the island
Chapter 2 2: Economic Outlook - Jamaica 21
Economic Activity 21
While Deficit Remains Wide, Current Account On The Mend 21
Jamaica's exports have yet to return to the levels seen before the financial crisis, but in recent months there have been some positive
signals suggesting the country is slowly making some progress on improving its current account position Non-traditional exports are
on the rise, while remittances are recovering following a contraction earlier this year Given these factors, we forecast a current account
deficit equal to 10 6% of GDP in 2013, which we expect to improve slightly to 9 8% in 2014
table: CURRENT ACCOUNT 21
Chapter 3 1: Political Outlook - Puerto Rico 23
Domestic Politics 23
Social Instability To Heighten Amid Recession And Austerity
We are downgrading our Short-Term Political Risk/Rating for Puerto Rico, as the combination of a deteriorating economy and the
implementation of austerity measures increases the scope for greater social instability in the near term
Chapter 3 2: Economic Outlook - Puerto Rico 25
Economic Activity 25
High Risk Of Default Amid Double-Dip Recession
We see a high likelihood of a technical debt default by Puerto Rico amid a double-dip recession and a delicate fiscal position In the
actual event of a default, the lack of legal precedent generates significant uncertainty of how it would unfold, though we see high risk of
substantial losses for investors
table: GDP BY EXPENDITURE, REAL GROWTH % 25
Chapter 4: Country Summaries 29
Bahamas 29
Economic Activity 29
Risks To Stability Despite Current Account Deficit Narrowing
While we forecast improved goods and services trade dynamics to narrow the Bahamas' current account deficit slightly in 2013 and
2014, the country will continue to face risks to its external account stability Relatively small import cover and the prospect of weakening
financial account flows present significant risk to the country's balance of payments position and currency peg to the US dollar over the
next several years
table: bahamas MACROECONOMIC DATA AND FORECASTS 29
Bermuda 32
Economic Activity 32
A Slow Recovery Ahead
Despite our expectation that a continued acceleration in US economic activity will provide a modest boost to the Bermudan economy
in the next few years, we are downgrading our 2013 and 2014 real GDP growth forecasts to -0 8% and 1 0% respectively This is
underpinned by still-weak high frequency data, and our view that the tourism and financial services sectors in the Caribbean are unlikely
to return to their pre-crisis levels in the foreseeable future
table: BERMUDA - MACROECONOMIC DATA AND FORECASTS 32
US Virgin Islands 34
Economic Activity 34
Refinery Shutdown To Keep Suppressing Economic Growth
We believe that economic growth in the US Virgin Islands will be weak in the coming years, as the territory's export performance
remains poor due to the closing of the Hovensa oil refinery in January 2012 Moreover, high unemployment from a loss of refinery jobs
will weigh on private consumption, while tighter fiscal policies and a drop in assistance funding from the US federal government will
provide further headwinds
table: VIRGIN ISLANDS, U S - MACROECONOMIC DATA AND FORECASTS 34
Cuba 36
Domestic Politics 36
US Embargo Reforms Likely, But Not Imminent
Given international disapproval of the US embargo on Cuba, the domestic support for reform, and the significant economic opportunities
which would arise under a normalisation of relations, we believe that US foreign policy towards Cuba will become less antagonistic in
the coming years However, given the political inertia on the issue in the US, we do not expect substantive changes to be imminent
Economic Activity 37
Currency Unification To Provide Economic Boon Over Long Term
The announcement that the Cuban government has decided to move ahead with plans to unify its dual currency system is a very
positive signal for the country's economic outlook, despite the complications sure to arise over the near term We expect that once
implemented, the unification will help support export growth, and address substantial inefficiencies currently endemic in the economy
Chapter 5: Regional 39
Economic Activity 39
Still Trouble In Paradise, Four Years On
Some four years after BMI released its special report titled 'Caribbean 2009/10: Trouble In Paradise', our latest assessment of the
region suggests that Caribbean island economies remain a long way from meaningful economic recoveries
table: Regional Real GDP Growth, % 39
Economic Activity 42
Tourism Weakness Will Drag On Regional Economic Growth
We expect that tourism industry growth throughout the Caribbean, traditionally a key driver of economic activity, will continue to slow in
the years ahead, keeping real GDP growth relatively subdued
table: Caribbean - Regional GDP and Tourism Growth Forecasts 43
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Table: Global Assumptions 47
Table: Developed States, Real GDP GrowtH, % 48
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 48
Table : Emerging Markets , Real GDP Growt h, % 49

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