RBC Caribbean Economic Report

Frosty Weather Contributes to Market Jitters

Given that US consumer confidence declined to 78.1 in February 2014, down from 79.4 in January, it can be argued that the polar vortex may have had a role to play, alongside uncertainty about the US debt ceiling and relatively weak   job creation.  RBC economists expect that the unusually adverse weather will slow real growth in consumer spending to 2.3% annualized in Q1 2014, down from 3.3% in Q1 2013.

Caribbean Development Bank is optimistic about 2014

The Caribbean Development Bank (CDB) recently delivered an economic overview of its nineteen regional Borrowing Member Countries (BMCs), estimating overall growth of 1.5% in 2013, up from 1.2% in 2012. The commodity exporters grew at a relatively faster pace than those dependent on services, despite softer commodity prices. Output in Guyana, Suriname and Haiti expanded by 4-6%, while Belize and Trinidad and Tobago grew less rapidly, based on lower energy sector output. None of the service-based economies saw growth over 3%, and Anguilla and Barbados experienced their sixth consecutive year of “economic stagnation”. St. Lucia is estimated to have contracted in 2013, based on declines in construction and financial sector activity, which were not fully mitigated by the uptick in tourism activity. The Jamaican economy is estimated to have recorded zero growth in 2013. Aside from Belize, the ECCU and Trinidad and Tobago, BMCs largely saw their external positions weaken in 2013, though the majority holds reserves in excess of the benchmark three months of import cover. Fiscal deterioration occurred in six out of the nine most heavily indebted BMCs, and Gross General Government Debt / GDP increased in all these BMCs, led by St. Lucia (up 14 points to 89%) and Barbados  (up 10 points to 108%). The fastest increase in debt/GDP was recorded in the Bahamas, Haiti, Suriname and Trinidad and Tobago. The CDB’s BMCs are collectively expected to grow at a pace of 2.5% in 2014, given that each BMC is expected to show positive growth. Most BMCs are expected to grow by 1-3% in 2014, led by Guyana, Haiti and Suriname.

Aruba— Deflation ends, Net Foreign Assets stabilize

The Central Bank’s December 2013 bulletin revealed a marginal increase in their Net Foreign   Assets to USD615.3 million, which we estimate at 3.8 months of import cover.  Inflation in December 2013 y-o-y reached 0.1%, up from  –0.4% in November.  Stopover arrivals increased by 11.3% y-o-y in December 2013, due mainly to a 34.2% increase in Venezuelan visitors, although growth in arrivals from Europe and North America was also recorded.

Bahamas— External position improves on borrowing

According to the Central Bank’s December 2013 report, there was a 7% decline in total hotel room revenue and the occupancy rate dropped 5.1% to 63.2% in December 2013, y-o-y.  Based on the Government’s foreign currency borrowings, the Central Bank’s external reserves recovered in December 2013 by USD62 million y-o-y, which is a significant drop from the USD163.5, million y-o-y increases recorded in December 2012. External reserves stood at USD761 million on December 25th 2013, which we estimate at 1.9 months of import cover, up from roughly 1.6 months of import cover in November 2013.  Commercial Banks’ non-performing loans fell to 15.7% of total loans in December 2013, up from 13.9% in December 2012.

Barbados— Fiscal consolidation efforts in full swing

According to the CTO, stopover arrivals declined by 5.5% in November 2013 y- o-y, which is the steepest drop seen across all regional countries reviewed. The IMF’s recently released reports outlined the following: the Government has laid off about 1,800 employees and another 1,200 will take effect by the end of March 2014; the level of gross central government plus non-financial pubic sector debt (including   debt held by the NIS) crossed 140% of GDP in September 2013; the fiscal deficit should narrow from 9.6% in FY 2013/14 to % change y-o-y

Cayman Islands—Stopover arrival growth continues

Between January and November 2013, stopover arrivals increased by 7% y-o-y.  Inflationary pressures appear to be intensifying, as the rate of inflation in September 2013 reached 2.8% y-o-y, despite some moderation in commodityPrices. Coincidentally, there was an 8.1% increase in the value of fuel imports in Q3 2013 y-o-y.

Curacao and St. Maarten— Reserves projected to grow

According to the CTO, between January and October 2013, Curacao saw a4.9% y-o-y increase in stopover arrivals, while Sint Maarten’s stopover arrivals grew by 1.3% y-o-y from January to September 2013.  Net Official Reserves rebounded during 2013, having grown from NAf1, 425.4 million in December 2012 to NAf1, 577 million in December 2013—an increase of NAf151.6 million, or 10.6%.

The Dominican Republic— Stopover arrivals cross 4MM

According to the Central Bank, foreigner stopover arrivals grew by 3.6% y-o-y in 2013, down from an increase of almost 6% y-o-y in 2012.  The volume of foreigner stopover arrivals for 2013 reached roughly 4.06 million visitors. This is by far the highest stopover volume in the region, according to comparative data from the CTO, and is also a record high for the Dominican Republic, given the Central Bank’s data go back to 1978. January 2014 saw the level of foreigner stopover arrivals   continue to grow—by 7.07% y-o-y.  The Central Bank maintained its policy rate at 6.25% in December 2013, although inflation of 3.88% is below the desired target of 4-6%.

Eastern Caribbean— Deflation intensifies in Q3 2013

In its Q3 2013 report, the ECCB released estimates that the ECCU economy contracted between January and September 2013, y-o-y.  According to the report, the decline in overall economic output is due to broad based contraction in hotels and restaurants, construction, transport, storage and communications, financial intermediation, manufacturing and agriculture   sectors. Only real estate, renting and business activities saw some improvement, how- ever insufficient to mitigate declines in other sectors.  Growth was recorded only in Grenada, St. Kitts and Nevis, and St. Vincent and the Grenadines.

Guyana—Net International Reserves expected to climb

According to the CTO, stopover arrivals increased by 11.6% between January and October 2013, y-o-y.  The Central Bank’s Statistical Digest for December 2013 reveals a projected increase in Net International Reserves to USD751.2 million, which we estimate at roughly 3.7 months of import cover.   On February 27th 2014, the USD selling rate stood at GYD208.44, up from an average

Selling rate in December 2013 of GYD207.94.

Jamaica—IMF estimates growth of 1.4% y-o-y in Q4 2013

In a statement issued on conclusion of a recent staff visit, the IMF reported that it “tentatively” estimates that economic activity expanded by 1.4% y-o-y in Q4 2013.  The IMF had earlier estimated growth at 0.9% in Q3 2013 y-o-y, which suggests that economic activity is gaining momentum.  Inflation fell to 9.7% y-o-y in December 2013, and the Bank of Jamaica’s Q4 2013 report stated that the JMD depreciated by 2.6% in Q4 2013 q-o-q, up from a depreciation of 2.1% in Q3 2013, q-o-q.  Jamaica stands to receive USD71 million from the IMF shortly, once the necessary approvals have been   secured, as “All   quantitative   performance targets   and    indicative   targets for   end- December were met” according to the IMF.

Suriname— Moody’s revises outlook to “stable”

Moody’s revised the outlook on its Ba3 government bond rating from “positive” to “stable”, driven mainly by fiscal deterioration despite rapid growth, rising debt, and lower export commodity prices.  Central Bank data show that International Reserves slipped in January 2014 to USD736 million, which we estimate at roughly 3.6 months of import cover.  Inflation jumped to 2.8% in January 2014, y-o-y according to the Central Bank.

Trinidad and Tobago—Inflation jumps to 5.6%

The Central Bank’s Monetary Policy Report for January 2014 revealed that headline inflation jumped to 5.6% n December 2013 y-o-y, up from 4.4% in November, while core inflation was steady at 2%. The supply of USD remains tight “due to higher seasonal demand and unexpected lower levels of foreign exchange conversions from the energy sector” according to the Central Bank. Private sector credit grew by 3.4% in November 2013 y-o-y, driven by a 7.5% expansion in consumer loans  (the fastest pace in over two years), while business lending declined by 4.5% – the twelfth consecutive month of contraction.

For more on this story go to:

http://www.rbc.com/economics/economic-data/pdf/Caribbean.pdf