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West Caribbean Business Forecast Report Q2 2014

  • February 2014
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

We believe that rising gold production, an improving tourism sector, and strong private consumption levels will continue to drive robust real GDP growth rates in the Dominican Republic in the coming years.
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.

Major Forecast Changes

We downgraded our real GNP forecast for Puerto Rico from 0.3% to -0.8% for FY 2014. Indeed, high unemployment, fiscal austerity, and weak unemployment will keep the economy in a recession for another year.
We revised up our 2014 real GDP growth forecast for the Dominican Republic to 4.5%, from 4.1% previously. Indeed, stronger-thanexpected gold exports and robust private consumption prompted us to upgrade our growth outlook for the country.

Key Risk To Outlook

Upside Risks: A stronger than expected economic recovery in the US could lead to larger export receipts, stronger remittances and a boost in tourism for many West Caribbean economies.
Downside Risks: There are significant downside risks to our growth and fiscal outlooks for Puerto Rico. We have become increasingly cautious towards the Caribbean commonwealth in recent months due to the rising likelihood of a default, and under such a scenario, the resulting economic recession would likely be deeper and longer than we currently forecast.

Table Of Contents

West Caribbean Business Forecast Report Q2 2014
Composite Rating 5
BMI Risk Ratings - Dominican Republic 6
BMI Risk Ratings - Jamaica 7
BMI Risk Ratings - Puerto Rico 8
BMI Ratings - West Caribbean Tables 9
Caribbean SWOTS 10
Executive Summary 13
Core Views 13
Major Forecast Changes 13
Key Risk To Outlook 13
Chapter 1.1: Political Outlook- Dominican Republic 15
Political Outlook 15
Medina To Shift To More Expansionary Fiscal Policies 15
We believe that after implementing a series of austerity measures since taking office in August 2012, the Dominican Republic's
President Danilo Medina will begin to adopt modestly more expansionary fiscal policies in the coming years, which will bolster his
popularity. Indeed, a sharp narrowing of the budget deficit in 2013 and growing tax revenue from gold will provide greater flexibility for
higher levels of government spending.
Chapter 1.2: Economic Outlook- Dominican Republic 17
Economic Activity 17
Mining And Tourism To Drive Stronger Growth 17
We expect the Dominican Republic economy to continue to strengthen in 2014, driven by rising gold exports and an improving tourism
sector. In addition, a narrowing budget deficit will allow the government to relax some of the austerity measures it implemented in 2013,
which will support greater private consumption in the coming months.
Chapter 2.1: Political Outlook - Puerto Rico 19
Political outlook 19
Tensions To Heighten As More Austerity Measures Are Implemented 19
We see rising scope for social and political tensions to increase in Puerto Rico in the near term. Indeed, the rising prospect of a
technical default by the commonwealth will pressure Governor Alejandro García Padilla to continue implementing unpopular austerity
measures. The economy remains in a recession and a decline in fiscal support will generate significant discontent among the population
and could lead to higher crime rates.
Chapter 2.2: Economic Outlook - Puerto Rico 21
Economic Analysis 21
Negative Economic Outlook As Risk Of Debt Restructuring Remains High 21
We maintain a negative economic outlook towards Puerto Rico as we expect the commonwealth to remain in its multi-year recession
in Fiscal Year 2014 as well. Moreover, we see a high risk of a debt restructuring within the next 12 months, as weak tax revenue,
combined with a recent credit rating downgrade to 'junk' status by major ratings agencies, could drive Puerto Rican officials to
renegotiate its payment terms with bondholders.
Chapter 3.1: Political Outlook - Jamaica 23
Political Outlook 23
Reform Momentum Continues To Build, But Progress Still Incremental 23
Jamaica continues to make significant structural reforms in order to put its economy back on track, and the IMF recently released a
report indicating that all of its performance benchmark criteria ha s been met through Q313. Furthermore, w hile significant headway has
been made in the areas of tax and spending reform, the country continues to struggle with a tarnished reputation among investors and
authorities are now focusing to a greater extent on direct improvements to the business environment. We believe that the changes could
significantly bolster the country's long-term economic outlook, although given the scope of the endeavour, progress will remain slow.
Chapter 3.2: Economic Outlook - Jamaica 25
Economic Activity 25
Growth To Accelerate, But Headwinds Remain 25
Although major economic structural adjustments and other headwinds will keep the rate of real GDP expansion low in 2014, we are
forecasting a growth rate of 1.8%, which is a slight improvement on the estimated 0.8% rate seen in 2013. The outlook for tourism and
other sources of export revenue is improving, while inflation has likely already peaked, and is set to head lower this year, boding well for
household consumption.
Chapter 4: Country Summaries 27
Aruba 27
Economic Activity 27
Cuba 29
Political Outlook 29
Bermuda 31
Economic Activity 31
Belize 35
Economic Activity 35
Bahamas 37
Economic Activity 37
Chapter 5: BMI Global Assumptions 39
Global Outlook 39
Fairly Benign Prognosis... With Risks 39
Table: Global Assumptions 39
Ta ble: Develop ed States, Real GDP Grow tH, % 40
Ta ble: Em erging Mar kets, Real GDP Grow th, % 41

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