Caribbean Economic Overview

Summary: Despite the threat of broadening geopolitical and geoeconomic tensions, the global economy remained buoyant in the first half of 2024. Russia’s relentless invasion of Ukraine continued, the Middle East conflict escalated, and signs of increased trade fragmentation among some of the larger economies emerged. Notwithstanding these developments, global economic growth remained stable, albeit with some divergence across major economic groupings, while global disinflation progressed, and major central banks began to ease monetary policy. Among the region’s major trading partners, US real GDP grew at an annualized rate of 3.0% in Q2 up from 1.6% in Q1, while UK real GDP growth came in at 0.5% in Q2 following 0.7% growth in Q1. Meanwhile, US inflation slowed to 2.5% in August heralding the Fed’s 50bps rate cut in September, while UK inflation fell below target to 1.7% in September, following the Bank of England’s 25bps rate cut in August. However, uncertainty in energy markets increased as OPEC+ production cuts, tensions in the Middle East, and growing global demand placed upward pressure on oil prices, but strong non-OPEC+ supply growth kept prices somewhat contained over the ten months to October 2024.

Economic activity in the Caribbean advanced at a moderate pace thus far in 2024, as output in most markets already completed their recovery cycles following the COVID-19 pandemic. Tourism remained the primary engine of expansion, fuelling greater transport and distribution output, while robust construction activity, largely linked to the accommodation sector, also continued to buttress growth. After topping 2019’s performance in 2023, stay-over arrivals to the region rose 6.2% y/y during H1 2024, supported by the hosting of the ICC Men’s T20 World Cup. However, recovery paths of individual markets diverged as arrivals to Barbados, Belize, Antigua and Barbuda, and St. Lucia surpassed pre-pandemic levels after falling short in 2023, but arrivals to arrivals to a few markets, namely Cayman Islands, Dominica, and St. Kitts and Nevis remained below. Cruise passenger arrivals continued to advance, growing 9.2% y/y and 11.9% relative to H1 2019, but this positive performance was heavily skewed as arrivals to most markets remained below pre-pandemic levels. Further, arrivals to some markets including Grenada, St. Kitts and Nevis, St. Vincent and theGrenadines, Belize, Sint Maarten, and Cayman Islands, declined during the half-year reversing recovery progress. Meanwhile, booming oil production flanking sustained growth of non-oil output continued to inflate the Guyanese economy during the first half of 2024, but delayed recovery of the energy sector likely stifled theeconomic performance of Trinidad and Tobago.

Regional inflation continued to soften in H1 2024, following a sharp deceleration in 2023. Consumer prices rose 2.6% y/y in June 2024 relative to 3.4% y/y one year earlier, though the pace of increase advanced in Antigua and Barbuda, Belize, Curaçao, and Sint Maarten. Declines in a few price categories, primarily transport and ‘housing utilities and fuel’ spawned inflation rates below 2% in The Bahamas, Barbados, Cayman Islands, Grenada, St. Kitts and Nevis, and Trinidad and Tobago, while the overall index slipped y/y in St. Lucia. Meanwhile, Jamaica’s inflation rate slowed to 5.7% y/y in September, after quickening to 6.5% in August attributed to Hurricane Beryl’s impact on agricultural produce and increased electricity rates. The Bank of Jamaica (BOJ) initiated an easing of its monetary policy stance, lowering its policy rate by 25bps to 6.75% and 6.50% in August and September, respectively.

The rebound of economic output coupled with rising inflation during the 2021-2022 period spawned improved public debt positions relative to peaks in the aftermath of the pandemic. Public debt-to-GDP ratios either fell below pre-pandemic levels or are expected to do so by the end of 2024 in all markets except, The Bahamas, Grenada, St. Lucia, and St. Vincent and the Grenadines, Trinidad and Tobago, Curaçao, and Sint Maarten. Remarkably, Jamaica’s public debt-to-GDP declined to 71% at August 2024, compared to 94% prior to theonset of the pandemic, on track to hit the 60% target by FY2026/27, while Barbados’ public debt virtually returned to its pre-pandemic level of 105% of GDP at September 2024, as the Government continues to make progress with its IMF-supported BERT 2022 plan. Belize’s public debt-to-GDP also declined notably relative to its pre-pandemic level but was aided by the debt-for-nature swap back in 2021, while Guyana’s ballooning economy led to smaller public debt ratios, despite growing nominal levels. Meanwhile, the Government of TheBahamas’ public debt ratio improved from its pandemic peak of 100% to 80% at June 2024, but remained above the pre-pandemic level, while Trinidad and Tobago’s the public debt trended upward over the last two years but remained below Government’s soft debt target of 75% of GDP.

International reserves of most territories increased over the most recent 12-month period and levels remained elevated. However, FX reserves in Belize slipped y/y settling at just above three months of import cover, underscoring the need for fiscal discipline and reduced central bank financing, while reserves in Trinidad and Tobago continued to trend downward – lower energy conversions alongside inflated demand preserved thetightness of the domestic FX market – but remained an adequate buffer. Banks’ loan growth continued to outpace deposit growth over the 12 months to June 2024, while loan quality and bank profitability improved in most markets, and capital adequacy ratios remained above acceptable levels. 

The IMF’s October 2024 World Economic Outlook projects that global economic growth will stabilise at 3.2% in 2024 and 2025, remaining broadly in line with its April 2024 and July 2024 outlooks. However, projections for the region’s major trading partners featured slight upward revisions. US real GDP growth was revised upward to 2.8% in 2024, expected to moderate to 2.2% in 2025, while UK real GDP growth was revised upward to 1.1% for 2024, projected to strengthen to 1.5% in 2025. Policy rates of major central banks will likely continue to decline consistent with easing inflation, but potential disruptions to disinflation triggered by escalating geopolitical tensions could thwart the loosening of monetary policy, exerting a drag on growth prospects. Further, recent and upcoming elections in major economies creates additional uncertainty regarding the direction of economic policy and implications for the global economy. After riding the wave of recovery from the pandemic, economic activity in the Caribbean is projected to grow more temperately in 2024 and 2025. Regional inflation is projected to continue to soften, though domestic factors in a few countries could result in some divergence, while falling interest rates also imply a forthcoming ease in external financing conditions for regional governments. However, the realization of potential threats to the global economy – commodity price shocks and/or slower growth in the region’s major trading partners – also jeopardizes theregional economic outlook.

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