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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

Caribbean Economies: Less Fun in the Sun

Monday, March 29, 2010 > 13:10:46
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By Peter G. Hall, Vice-President and Chief Economist, Export Development Canada


Northerners are now returning from the annual Spring Break trek to southern destinations. Once again, Caribbean nations extended a traditional warm welcome to visitors, although cooler weather and a not-too-hot world economy may have kept their numbers down. Caribbean countries have felt the ill effects of the global downturn directly. Are they poised to fully harness economic recovery?


Hot global growth was a boon to the Caribbean zone. From 2003 to 2008, pan-regional output grew on average at an impressive 5% annual pace. World recession wreaked havoc with business and personal travel, investment activity and global financial flows. The abrupt change in the global economic climate jolted the region, with output growth slowing sharply to an estimated 1% last year.


Tourism was a big part of the story. Many destinations saw double-digit declines in visits during 2009. On top of that, travelers were more frugal, putting an additional bite on dollars spent. Lower cost locations like Cuba and the Dominican Republic managed to keep pace with 2008 tourist levels, increasing market share at the expense of most others. Winter travel was hardest hit, and declines moderated later in the year. Overall, visits were down an estimated 3.3% for the year, following 2.3% growth in 2008. It is too early to tell what this year’s numbers are like, but with Western consumers still under pressure, anecdotal information suggests that tourist activity remains slower.


Caribbean economies are also dependent on non-tourist trade. Global recession reduced overall output by 1%, but exports sustained a much deeper 12% hit to activity. This also affected prices for most commodities, a further blow to Caribbean exporters and to associated government revenues.


Lower trade flows and the financial liquidity crunch pummeled foreign direct investment (FDI) activity, which fell from US $1.7 trillion in 2008 to just US$1.2 trillion last year. The Caribbean region handles a disproportionately high share of global FDI, which is partly destined for local residential and hotel investments, but mostly tied to the offshore operations of large international investors. Sharply lower FDI has had a significant impact on the many international financial institutions that have a Caribbean presence. Moreover, calls for greater regulation and transparency in the wake of the late-2008 near-collapse of the financial system are likely to have a lasting impact on the region’s banking operations.


Will global recovery reverse the region’s fortunes? World growth is forecast to gain momentum in the latter half of 2010, but the Caribbean is likely to lag behind. First, Western consumers are expected to remain more frugal and choosy about their travel destinations. Second, trade flows have picked up, but are still well shy of the previous peak. Third, investment always lags behind the economic cycle; as such, FDI flows will stage a slower return to former heights. Fourth, slower overall activity has weighed on the public purse, threatening to stymie much-needed regional infrastructure projects.


The bottom line? The Caribbean has a strong link to the world economy, and as such, has felt the weight of the global recession. Exposure to Western consumers and investment activity will slow the region’s response to recovery. But early signs of growth are evident, suggesting the region has turned the corner, and hard currency reserves have staged a remarkable rebound. As such, prospects for Canadian exporters and investors in the region have brightened, and should continue to improve.

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