WASHINGTON, DC – The World Bank says Latin America and Caribbean economies have proven relatively resilient in the wake of increasing debt stress, inflation and rising global uncertainty.
William Maloney, Latin America and Caribbean Chief EconomistBut the Washington-based financial institution is warning that new headwinds in the form of lower commodity prices, higher interest rates in developed countries and China’s unsteady recovery could potentially turn the region’s prospects bleak.
It said in order to boost much needed growth, countries should preserve their hard-won resilience and seize the unique opportunities global economy trends offer in nearshoring – moving production closer to home markets, and the green industry.
A new report titled “The Promise of Integration, Opportunities in a Changing Global Economy,” estimates that regional gross domestic product (GDP) will grow by 1.4 percent in 2023, a lower-than-expected rate.
It said rates of 2.4 percent are expected for 2024 and 2025, too low to make significant progress in poverty reduction.
“The region has largely recovered from the pandemic crisis but unfortunately is back to the low growth levels of the previous decade,” said Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean.
“Countries need to urgently accelerate inclusive growth, so that everyone benefits from development, and this will require maintaining macroeconomic stability and taking advantage of the opportunities trade integration offers today.”
According to the World Bank, Caribbean countries are small open economies, extremely vulnerable to natural disasters and global economic shocks, given a reliance on tourism and commodity exports.
It said the COVID-19 pandemic had a disproportionate socioeconomic impact on most Caribbean countries and, as a result, GDP contracted as much as 16-20 percent in some countries in 2020 and that uneven recovery started in 2021 with growth rates ranging from about one percent to 15 percent.
In 2022 recovery continued, also at an uneven pace with growth rates between four and 15 percent.
The World Bank said that GDP grew by an estimated 11 percent last year in the Bahamas slightly less than in 2021, but remains below its 2019 level. It said growth was driven by the recovery of services, particularly by tourism. The economy is expected to grow by 4.3 percent in 2023 and at about two percent thereafter.
In Barbados, the World Bank said although GDP remains below its 2019 level, the island’s ’ economy is rebounding, benefiting from a return of tourists that allowed for an economic growth of 10 percent in 2022.
“After a pandemic-related interruption, implementation of the Barbados Economic Recovery and Transformation (BERT) plan has resumed. In the baseline scenario, the economy is expected to grow at about four percent in the medium term,” the World Bank noted.
In the case of Belize, that CARICOM country experienced a sound economic rebound, fueled by increased tourism arrivals and tourism-related construction, and real GDP per capita surpassed its pre-pandemic level in 2022 after the GDP growth rate reached 15.2 percent in 2021 and estimated 9.6 percent in 2023.
The bank said the economy is expected to grow at a rate of two to three percent in the medium term.
The Dominica’s economy continues to perform well as growth rebounded to 5.8 percent in 2022 on relaxation of domestic COVID-19 containment measures and improving tourist arrivals, which have returned to near 2019 levels.
The World Bank said growth in 2023 is expected to remain robust at five percent and that medium-term growth prospects appear favorable, although considerable uncertainty remains. Grenada’s economic activity and poverty improved gradually in 2021 and 2022, fueled primarily by the strong resumption of tourism.
The World Bank said stayover visitors increased by more than 200 percent from 2021 to 2022 but remained 18 percent below the 2019 level. Over the medium term, real output growth is projected to be moderate, averaging 3.2 percent.
The Washington-based financial institution said that Guyana’s extraordinary economic growth, averaging 31.7 percent over the last four years, brought real GDP per capita to US$17,044.8 in 2022, from US$6,348.7 in 2019.
“Guyana is expected to remain one of the fastest growing economies with double digit growth rates over the medium-term (2023-25) due to continued expansion of the oil sector,” it added.
In the case of Haiti, the World Bank said the French-speaking CARICOM country’s GDP contracted to 1.7 percent in 2022, with agriculture, which employs 40 percent of the labour force, registering the largest decline of minus 4.5 percent.
“This marks the third consecutive year of output decline. The economy will likely continue to face the same headwinds in 2023, with GDP expected to contract for a fifth consecutive year,” the World Bank noted.
It said real GDP in Jamaica is estimated at 4.2 percent for 2022 on account of the continued rebound in tourism and agriculture.
Jamaica’s real GDP growth is expected to average only 1.9 percent between 2023-24, driven by continued recovery in the tourism sector and increased mining and quarrying activities. “The fiscal account is expected to record an average annual surplus of 0.3 percent of GDP over the medium-term with revenues underpinned by the continued economic recovery.”
St. Lucia’s economic growth accelerated further in 2022, due to a strong rebound in the tourism sector, which rebounded strongly in 2021 and 2022.
The World Bank said over the medium term, real output growth is projected to slow down gradually over the medium term, compounded by a slow-down in global growth.
It said St. Vincent and the Grenadines growth is returning and reached five percent in 2022 and is expected to reach six per in 2023, following 1.3 percent growth in 2021.
“The risk of debt distress remains high with public debt reaching 87.8 percent of GDP at the end of 2022, of which external debt is 68.9 percent.”.
The World Bank said a gradual resumption of economic growth in Suriname is expected in the medium term, at nearly three percent per year.
“However, significant challenges remain as the government tackles macroeconomic imbalances. Successful implementation of the macroeconomic stabilization program is critical to contain currency depreciation and inflation,” it added.
The World Bank report added that after recovering from the pandemic, the region has managed with relative success the multiple crises caused by the Russian war in Ukraine and the uncertainties surrounding the global economy.
Both poverty and employment are mostly back to pre-pandemic levels, while average inflation is expected to decline to five percent in 2023 after reaching 7.9 percent in 2022.
According to the report, the region´s overall resilience is the result of hard-won progress in macroeconomic management over the past two decades. Preserving this progress will be paramount.
However, on average, fiscal imbalances remain high, expected at 2.7 percent of GDP in 2023, further eroding already tight fiscal space, and debt levels are estimated to reach 64.7 percent of GDP this year, slightly down from 66.3 percent in 2022. Furthermore, the recent bank failures in the US and Europe introduce additional uncertainty. Its resonance in LAC´s banking system and capital flows remains to be seen.
“The LAC region remains one of the least integrated, while trade openness and FDI flows have mostly been stagnant or decreasing over the past 20 years; countries should find ways to gain attractiveness and take advantage of the nearshoring trends,” said William Maloney, chief economist for Latin America and the Caribbean at the World Bank.
“In addition, leveraging the region’s extraordinary comparative advantage in sustainable energy production, commodities necessary for emerging green industries, and the region’s unique natural capital offers a new potential source of growth, but will require policies to facilitate access to global markets, capital, and technology.”
The report suggests a series of integration advancing policies countries should consider to seize these opportunities.
This includes long term policies such as reducing systemic risks, boosting traditional and digital infrastructure investments, and improving human capital, as well as short-term options such as preserving macro stability, promoting customs and transport regulatory advances, and improving export and investment promotion agencies.
