Caribbean Economic Outlook 2015: Seeing Stars

May 15th, 2015

By Juan Pedro Schmid

Photo courtesy of Wikimedia Commons, Egres73

What will 2015 bring to the Caribbean? A famous economist once said that ‘the only function of economic forecasting is to make astrology look respectable’. While I tend to agree that my discipline does not have too much luck lately with forecasting (the recent world economic recession is a good example of a crisis that was absolutely missed), the recent Caribbean Region Quarterly Bulletin still tries to make an informed assessment of the risks and opportunities for the Caribbean economies in 2015.

A major difference between today and one or two years ago, is that many of us are more optimistic about the Caribbean in 2015. The outlook has improved as some major risks have decreased substantially (See here what a spread of Ebola could have done to the region) but some would even argue that we are experiencing profound changes; that 2015 is the year the Caribbean starts to live up to its potential.

This is, in a nutshell, the interpretation of the March 2015 Caribbean Region Quarterly Bulletin. The reason for this positive outlook is a mixture of right policies and pure luck. Right policies because several countries are implementing economic reforms to get over the effects of the world economic downturn, re-establishing buffers and accelerating economic growth. Luck, because the international economic environment is, for once, a supporting factor for the Caribbean.

The major factor is of course the fall in oil prices, which benefits the, mostly, oil importing countries in the region. Despite the fact that oil prices have been trending up since hitting $42 per barrel in March 2015, the likelihood that prices will remain at moderate levels remains high. This is hugely positive for most of the region.

In addition, while economies are diverging or diversifying?, the dependence of the Caribbean on the United States, Canada and the UK, all of which are performing relatively strong, is paying off (for once).

But of course, important risks and challenges are ahead. The favorable international environment could turn again against the Caribbean if oil prices increase quickly and/or the world economy slows down. Extreme weather also remains a threat for all countries in the region (note the recent earthquake in Nepal reminds us of our own fault line which includes Jamaica). In addition, a formidable new competitor is in the making with Cuba normalizing relations with the United States; while economic and political instability in Venezuela might bring an end to the PetroCaribe agreement that is benefitting several countries in the region.

As such, the major conclusion of the report is that the international environment in 2015 should provide some breathing space to prepare for what 2016 might bring; hoping of course that the stars are well aligned.

Tags: Caribbean development, Caribbean economies, developing the Caribbean, ebola, oil, Petrocaribe