Aug 2008 Financial News

Grim forecast from Wall Street

Aug 21, 2008

"FOR THE WHOLE CARIBBEAN region it is going to be a more difficult year."

That dire economic outlook has come from Wall Street. With the United States economy either facing or already in a recession and Britain's economy slowing significantly, Caribbean countries – with the exception of energy-rich Trinidad and Tobago – are going to have a tough time for the rest of 2008 and possibly 2009, according to Richard Francis, a top economic analyst at Standard & Poor's (S&P), the world's best-known credit-rating firm.

"Higher oil prices and higher food prices, a slowdown in the United States and a slowdown in Europe would continue to have a negative effect," Francis told BARBADOS BUSINESS AUTHORITY in New York.

"Trinidad and Tobago is the only country not facing that kind of situation – outside of that, it's going to be difficult." However, Barbados was among the countries Francis had in mind.

But if there is a silver lining in all of this, it's the set of pragmatic policies now in place in the Caribbean, he said. And this has accounted for the fact that although the outlook was far from rosy, S&P has not changed any of its ratings for Trinidad and Tobago, the Bahamas, Barbados, Belize, Jamaica and Montserrat. A slight change has been made in The Bahamas' outlook, which went from "positive" to "stable" to reflect the country's prospects.

Like Jamaica, The Bahamas relies heavily on the United States market for most of its tourists and with the US economy in a declining mode it didn't come as a complete surprise when S&P made a change in the outlook but not in the A-minus rating itself.

"We don't have a negative outlook or a downgrade, except for the Dominican Republic, which isn't an English-speaking country," he explained. "We put the Dominican Republic on negative outlook."

The most highly rated countries in the Caribbean are Trinidad and Tobago and The Bahamas with A-minus ratings; Barbados with BBB plus and a stable outlook; Belize, B and stable; Grenada, B minus, stable; Suriname, B plus, stable; Jamaica, rated B and stable.

The problem for most of the countries is the declining trend in the global economy, especially in the United States and now the United Kingdom, and those factors are expected to hurt tourism earnings.

"It remains to be seen, the depth and the length of recession which is likely in the United States and the slowdown in Europe," Francis said.

"That may also be key to the outlook not only in 2008 but in 2009 as well. We are forecasting, for the US economy, growth of 1.6 per cent growth this year and most of that is in the first half of the year. For next year we are forecasting growth of 0.7 per cent. It is a pretty sharp slowdown and it will be a recession. The delayed numbers for Britain appear to show a pretty sharp slowdown there as well."

S&P gave a recent analysis of various Caribbean economies:

* Jamaica: the economy should grow by two per cent this year with unemployment reaching 10.4 per cent and the consumer price index hitting 13.5 per cent, up from a 12.4 per cent average for 2004-08. External current account deficit "should hover at about 13 to 15 per cent of GDP (gross domestic product) in the next two years, and external liquidity should remain tight".

* Grenada: 3.5 per cent economic growth this year and a 10.5 per cent jobless rate. Inflation may reach three per cent while the central government fiscal deficit should be almost six per cent of GDP. The problem for Grenada is the government's mountain of debt, which stands at 120 per cent of GDP. "We expect economic growth to increase moderately reflecting ongoing large tourism developments, continuing reconstruction activity and a further pickup in agriculture."

* Suriname: rated at B Plus, should see its economy grow by five per cent between 2008 and 2010, slightly down from the 5.6 per cent average growth of the past three years. Unemployment and inflation should each reach nine per cent.

* The Bahamas: enjoyed "robust economic growth" last year, should record three per cent expansion this year. The decline can be attributed to the "ongoing negative impact of contagion from the US – the country's largest tourism, financial and trade partner". Unemployment may reach nine per cent and inflation should climb to at least 2.3 per cent, up from an average two per cent for 2004-2008.

* Barbados: 2.5 per cent growth this year and two per cent in 2009. Unemployment plummeted in 2006 and 2007 but may rise to about nine per cent this year; the cost-of-living index should be in the 7.5 per cent range.

* Belize: like Barbados and Grenada, changed government this year. May record slower economic growth in 2008 compared to last year, falling to 2.5 per cent from almost four per cent in recent years. Unemployment may bottom out at 8.5 per cent in 2008 and the inflation rate could settle at around four per cent.

* Montserrat: its economy is projected to expand this year by 3.3 per cent but unemployment should remain relatively high at close to 14 per cent with inflation reaching 3.5 per cent.

* Trinidad and Tobago: the country with the strongest and most successful economy based largely on its vast energy resources is expected to register almost six per cent growth this year, a drop from 7.5 annual expansion between 2004 and 2008. Unemployment may fall to the region's lowest, five per cent, but the consumer price index may rise to almost eight per cent.


Source:
Tony Best
Nation News
Monday August 18, 2008

http://www.nationnews.com/story/301398160287004.php