Despite the numerous challenges and uncertainties facing the economies of the Caribbean region in the period ahead, the economic prospects for the region as a whole appear relatively favorable (Table 13). Economic growth in the region is expected to accelerate over the medium term, averaging about 3½ percent a year over the period 2000–2005, which is significantly better than the performance of the region in the 1980s and 1990s, but below the projected average annual growth in the world economy of more than 4 percent. This acceleration in economic activity in the region is influenced by many factors, including the turnaround in economic performance in the region’s export markets other than the United States, increases in the prices of the region’s major export commodities, and the impact of new investment projects in the energy and tourism sectors in some countries. In the OECS countries, growth is expected to remain fairly robust, as a number of countries are pursuing—and plan to pursue—aggressive diversification strategies that encourage the expansion of service sectors. Economic growth in these countries is expected to accelerate to more than 4 percent a year on average over the medium term, which is faster than the average annual growth they enjoyed in the last decade. Nonetheless, economic growth will not likely be sufficient to reduce substantially the incidence of poverty or unemployment in the region.
Caribbean Region: Medium-Term Macroeconomic Projections
Data in the 1980s available for the period 1984–89 only.
Caribbean Region: Medium-Term Macroeconomic Projections
| Averages | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1980–89 | 1990–99 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||
| Real GDP growth (in percent) | |||||||||||||
| CARICOM | 3.0 | 2.6 | 2.2 | 2.3 | 3.8 | 3.6 | 3.4 | 3.4 | 3.5 | 3.6 | 3.6 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | 4.2 | 2.9 | 4.0 | 2.7 | 3.8 | 3.5 | 3.3 | 3.4 | 3.6 | 3.8 | 3.8 | ||
| OECS | 6.4 | 3.4 | 3.5 | 4.0 | 3.7 | 4.7 | 4.2 | 4.1 | 4.2 | 4.2 | 4.2 | ||
| CPI inflation (in percent) | |||||||||||||
| CARICOM | 12.5 | 14.4 | 4.7 | 5.7 | 5.1 | 4.3 | 4.2 | 3.9 | 3.5 | 3.2 | 3.1 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | 10.0 | 11.9 | 2.8 | 4.4 | 5.2 | 4.2 | 3.8 | 3.4 | 3.2 | 3.2 | 3.2 | ||
| OECS | 6.1 | 3.0 | 1.7 | 2.5 | 1.6 | 1.8 | 1.8 | 1.9 | 1.9 | 1.9 | 1.9 | ||
| General government balance | |||||||||||||
| (in percent of GDP)1 | |||||||||||||
| CARICOM | -6.9 | -1.7 | -4.4 | -5.6 | -4.3 | -2.8 | -2.3 | -1.8 | -1.1 | -0.5 | -0.6 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | -9.0 | -2.8 | -3.2 | -3.3 | -2.6 | -1.7 | -0.8 | -0.3 | 0.0 | 0.2 | 0.4 | ||
| OECS | -2.0 | -0.8 | -2.5 | -2.3 | -3.1 | -1.2 | 0.0 | 0.5 | 0.9 | 1.0 | 1.3 | ||
| Central government balance | |||||||||||||
| (in percent of GDP) | |||||||||||||
| CARICOM | -7.1 | -1.9 | -2.6 | -3.9 | -4.2 | -2.7 | -2.0 | -1.4 | -1.0 | -0.6 | -0.3 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | -8.5 | -3.4 | -1.5 | -3.6 | -3.7 | -2.5 | -2.4 | -1.7 | -1.3 | -1.1 | -0.8 | ||
| OECS | -5.2 | -2.2 | -1.5 | -3.7 | -3.7 | -1.3 | -3.7 | -2.6 | -2.4 | -2.1 | -2.0 | ||
| Current account balance (in percent of GDP) |
|||||||||||||
| CARICOM | -5.8 | -3.7 | -9.0 | -9.7 | -7.6 | -4.6 | -3.7 | -3.4 | -3.3 | -3.1 | -3.1 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | -7.2 | -6.0 | -10.6 | -13.5 | -10.2 | -7.0 | -5.7 | -5.2 | -4.8 | -4.6 | -4.4 | ||
| OECS | -15.0 | -12.7 | -13.8 | -12.5 | -15.7 | -13.2 | -11.2 | -10.7 | -10.2 | -10.1 | -9.9 | ||
Data in the 1980s available for the period 1984–89 only.
Caribbean Region: Medium-Term Macroeconomic Projections
| Averages | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1980–89 | 1990–99 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||
| Real GDP growth (in percent) | |||||||||||||
| CARICOM | 3.0 | 2.6 | 2.2 | 2.3 | 3.8 | 3.6 | 3.4 | 3.4 | 3.5 | 3.6 | 3.6 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | 4.2 | 2.9 | 4.0 | 2.7 | 3.8 | 3.5 | 3.3 | 3.4 | 3.6 | 3.8 | 3.8 | ||
| OECS | 6.4 | 3.4 | 3.5 | 4.0 | 3.7 | 4.7 | 4.2 | 4.1 | 4.2 | 4.2 | 4.2 | ||
| CPI inflation (in percent) | |||||||||||||
| CARICOM | 12.5 | 14.4 | 4.7 | 5.7 | 5.1 | 4.3 | 4.2 | 3.9 | 3.5 | 3.2 | 3.1 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | 10.0 | 11.9 | 2.8 | 4.4 | 5.2 | 4.2 | 3.8 | 3.4 | 3.2 | 3.2 | 3.2 | ||
| OECS | 6.1 | 3.0 | 1.7 | 2.5 | 1.6 | 1.8 | 1.8 | 1.9 | 1.9 | 1.9 | 1.9 | ||
| General government balance | |||||||||||||
| (in percent of GDP)1 | |||||||||||||
| CARICOM | -6.9 | -1.7 | -4.4 | -5.6 | -4.3 | -2.8 | -2.3 | -1.8 | -1.1 | -0.5 | -0.6 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | -9.0 | -2.8 | -3.2 | -3.3 | -2.6 | -1.7 | -0.8 | -0.3 | 0.0 | 0.2 | 0.4 | ||
| OECS | -2.0 | -0.8 | -2.5 | -2.3 | -3.1 | -1.2 | 0.0 | 0.5 | 0.9 | 1.0 | 1.3 | ||
| Central government balance | |||||||||||||
| (in percent of GDP) | |||||||||||||
| CARICOM | -7.1 | -1.9 | -2.6 | -3.9 | -4.2 | -2.7 | -2.0 | -1.4 | -1.0 | -0.6 | -0.3 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | -8.5 | -3.4 | -1.5 | -3.6 | -3.7 | -2.5 | -2.4 | -1.7 | -1.3 | -1.1 | -0.8 | ||
| OECS | -5.2 | -2.2 | -1.5 | -3.7 | -3.7 | -1.3 | -3.7 | -2.6 | -2.4 | -2.1 | -2.0 | ||
| Current account balance (in percent of GDP) |
|||||||||||||
| CARICOM | -5.8 | -3.7 | -9.0 | -9.7 | -7.6 | -4.6 | -3.7 | -3.4 | -3.3 | -3.1 | -3.1 | ||
| CARICOM, excluding Jamaica and Trinidad and Tobago | -7.2 | -6.0 | -10.6 | -13.5 | -10.2 | -7.0 | -5.7 | -5.2 | -4.8 | -4.6 | -4.4 | ||
| OECS | -15.0 | -12.7 | -13.8 | -12.5 | -15.7 | -13.2 | -11.2 | -10.7 | -10.2 | -10.1 | -9.9 | ||
Data in the 1980s available for the period 1984–89 only.
Assuming no terms of trade shocks (with relatively stable oil prices) and generally prudent monetary policies, inflation in the region is projected to average about 4 percent a year over the medium term, which is above the average annual forecast for inflation in the major trading partner countries of about 2½ percent. However, over the medium term, the inflation differential between the Caribbean region and its trading partners is expected to narrow to only 0.6 percentage point in 2005 from about 1.8 percentage points in 2000. Inflation in the OECS countries is expected to fall below 2 percent.
The overall fiscal position of the region could improve over the medium term, as a number of countries take measures to strengthen the public finances. The fiscal improvements are largely dependent on the acceleration of economic growth and expenditure restraint that includes careful management of the size of the public sector workforce and restrained public sector wage increases. In addition, countries in the region are expected to see an improvement in their revenue collections as a result of past reforms to their tax systems that will yield efficiency gains over the medium term.
The external position of the Caribbean countries is projected to strengthen over the medium term. The size of the current account deficits is expected to revert to about the levels observed in the early 1990s. The decline in current account deficits stem partly from the projected increases in the prices of the region’s major export commodities and the expectation of fairly robust growth in tourism receipts, as non-U.S. growth picks up. Also, the region’s external competitiveness is expected to improve with the narrowing of the inflation differential with the major trading partner countries. The current account deficits of the OECS countries, while remaining much higher than the deficits of the other Caribbean countries, will also likely decline. The anticipated fiscal consolidation over the medium term will also help improve the outlook for the region’s exports and external current account.
On the whole, prospects for the Caribbean region remain broadly satisfactory, but there are a number of risks to the outlook. First, economic growth in the United States—the major trading partner—has been stronger than anticipated in recent years. If the U.S. economy slows precipitously in the near term (especially in light of recent efforts to contain inflation), then growth in foreign exchange earnings for countries in the region will certainly be jeopardized, which would also adversely affect the region’s growth and fiscal performance. Second, the prospects for the countries in the region depend importantly on the behavior of commodity and import prices over the medium term. In 1998 and 1999, world commodity and import prices (other than for petroleum) declined markedly, which was an important factor in keeping inflation low in many countries in the region. If prices for imported food items were to rise more rapidly than envisaged, then inflation for the Caribbean region would likely accelerate, owing to the high import content of the consumption basket. Alternatively, higher prices for the region’s main commodity exports other than petroleum—bananas, sugar, and minerals—would improve the external position of the region. If the price of oil were to rise sharply, then the external position of most countries in the region would tend to worsen, given that they are net importers of petroleum, while one country—Trinidad and Tobago—would likely experience an improvement in its external position.