Caribbean economies not expected to show robust growth in 2011

SANTIAGO, Chile, CMC – While Latin American economies will record stronger growth as the region continues to recover from the global recession, the Caribbean is only expected to expand by half as much this year, according to a report by a United Nations economic watchdog.





The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) said that while South American economies would lead the way with combined growth rates of four to five per cent, the Caribbean would only muster less than two per cent expansion as the regions passed a two-year milestone after they began to emerge from the worldwide doldrums in the second half of 2009.





“As in previous years, the region has three-tier growth,” ECLAC said in its latest economic survey of the region. “On the one hand, the highest growth rates are in South America, which will grow by 5.1% in 2011… Central America will grow by 4.3% and the Caribbean by 1.9%”>







South American growth would be attributable to “a significant improvement” in trade as the countries fetched higher prices for their commodity exports, ECLAC said.





In presenting the report here, ECLAC executive director Alicia Bárcen said that overall, the economies of Latin America and the Caribbean are expected to grow by 4.7, slightly head of a previous projection of 4.2 per cent rise. This growth implies a 3.6 per cent rise in per capita GDP, she added.





Bárcena said that the current situation calls for close attention to be paid to the macroeconomic policy challenges that will be facing the region.





“We must recover the fiscal space in order to be able to take measures to ensure sustained growth with productive employment and equality,” she said.







In 2011, regional growth will be led by more consumer spending as credit became more available and more jobs were being created, Bárcena added.





According to the report, the growth could also lead to the region’s overall unemployment rate falling to between 6.7 per cent and seven per cent in 2011, from 7.3 per cent in 2010.





In terms of countries, ECLAC said the fastest growing this year will be Panama at 8.5 per cent. Haiti will grow by 8.0 per cent, it said.





ECLAC said that rising international food and fuel prices, in a context of higher internal demand, have given rise to inflationary pressures.







As a result, it said several of the region's countries have toughened their monetary policy, “which has increased the difference between internal and international interest rates.”





“In a context characterized by extremely high external liquidity, this may lead to exchange rate appreciation in the region,” ECLAC said.







It predicted that as the region became more attractive to investment and local currencies strengthened, this could help relieve poverty and bring down food prices “in the short term”.





But ECLAC warned that in this growth spurt the region could become vulnerable to “speculative capital movements” in the quest for short-term gains, leading to financial asset and property bubbles.





ECLAC also noted that high international liquidity pushes down real exchange rates while pushing up commodity prices, “which encourages intensive specialization in commodity exports and production.





“This increases the vulnerability of the region's economies to external shocks and creates greater investment volatility, thereby negatively affecting the capacity to grow, generate productive employment and reduce inequality,” ECLAC said.





It urged the region's economic authorities to intervene in the foreign exchange market, put checks on capital inflows and boost financial regulation in a bid to stem currency appreciation.





“Such measures would be boosted by an accompanying fiscal policy aimed at increasing public sector savings,” it said.





The regional economic body also warned that the global economy was not yet out of the woods with uncertainty remaining in the United States, Europe and Japan, and the possibility of a worsening international climate limiting the region's growth potential.





“It is, therefore, advisable to take advantage of the current favourable conditions to recover the policy space that was lost in the crisis,” it said.