The Caribbean's lack of momentum
Published:Friday | August 27, 2010 | 12:00 AM
Dennis Morrison, Guest Columnist
In a marked departure from previous recessions, momen-tum for recovery of the world economy this time around is coming from emerging market economies, especially China, India, Brazil, and other Asian and Latin American countries.
Extraordinary monetary and fiscal stimulative measures in the United States, Europe and Japan were crucial to, first, the stabilisation of the international financial system, and then the refloating of the global economy.
Demand in these economies, traditionally the engine of world economic growth has, however, been less of a force in driving the recovery.
At the forefront of the revival is the Chinese economic juggernaut which, this year, will displace Japan as the world's number two economic power.
Even before the latest evidence of a faltering of the recovery in the US and Europe, the International Monetary Fund (IMF) was projecting that the advanced economies - US, United Kingdom, and other G8 countries — were likely to grow by only 2.6 per cent this year.
On the other hand, emerging market economies were expected to see robust growth of 6.8 per cent, which will serve to boost overall world output by 4.6 per cent, up from the earlier projection of 4.2 per cent.
Notably, while the projections for growth in the US are being revised downward significantly, China is slated to record growth of 10.3 per cent in 2010.
Already undergoing the most rapid transformation, the Chinese economy has soared during the current global crisis, pumped up by the most massive fiscal stimulus in per capita terms, and steep increases in new loans. These have fuelled rapid expansion of domestic consumption and investment.
Investment activity has proceeded at breakneck speed and been particularly pronounced in infrastructure, real estate development and manufacturing plant. The resulting demand for raw materials has been largely responsible for the rebound in global commodity markets, especially metals.
Other leading emerging market economies have also bounced back sharply, as in the case of Brazil, which saw growth of 9.0 per cent in the early months of 2010, and India, where output climbed by 8.0 per cent.
The remaining high-performing Latin American and East Asian economies are gaining speed, but, being more dependent on export markets, the momentum of their recovery is more susceptible to the weakening conditions in the US and Europe.
Some economies have still to emerge from recession, including in the Caribbean, and these are the most vulnerable to the slowdown in the global recovery and a possible double-dip recession.
In the Caribbean region, the Dominican Republic was the least affected, managing to avoid an outright recession in 2009, buoyed by the stimulation of domestic demand.
The latest data show that its economy registered growth of 7.5 per cent in the first quarter of 2010, with exports, imports, tax collection and private credit increasing at respectable rates.
IMF projections are for Dom Rep's real GDP to grow by 5.0-5.5 per cent this year, which would mean that the economy would be in full recovery mode by 2011.
Caricom countries have been among the slowest to recover from the global recession, as export markets and foreign investment inflows on which they are heavily dependent plummeted. The mostly small, tourism-dependent economies were hit hard by the fallout in the travel industry from which they are still reeling.
Except for Guyana, which managed to achieve growth in 2008 and 2009 and in the first half of 2010, and Trinidad & Tobago, which returned to growth in the fourth quarter of 2009, Caricom countries were still in recession in the first half of 2010.
Jamaica contracted 0.9 per cent at half-year.
In Trinidad & Tobago, the largest Caricom economy, real GDP grew by 2.3 per cent in the first quarter of 2010, but this came entirely from the energy sector, which expanded by 5.5 per cent. In the non-energy sector, activity in construction and manufacturing was still in decline, as domestic consumption was sluggish. Government revenues, however, grew as oil prices rose and petrochemical output increased.
Nonetheless, inflation jumped back to the double-digit levels that preceded the recession, triggered by weather-related spikes in domestic food prices.
The Barbadian economy, which is driven by tourism, financial services and foreign direct investment, contracted by 1.1 per cent in the first half of 2010, which represented a big improvement on the 9.9 per cent decline registered in the same period of 2009. Importantly, stopover visitor arrivals increased by 3.0 per cent in the first half of the year.
Demand for most domestic goods and services was fragile, while output in construction fell by 13 per cent, and manufacturing by 7.7 per cent, the impact of which was reflected in a further increase in the unemploy-ment rate to 10 percent.
The OECS countries are also struggling to emerge from recession, recording a decline of 4.1 per cent in the first quarter, as against 7.3 per cent in the same period last year when visitor arrivals were falling by over 10 per cent in some territories.
Like Barbados, recovery in these countries is critically linked to tourism and foreign direct investment.
Dennis Morrison is an economist.