Economies are experiencing diverging economic growth rates

Caribbean economies continue to experience growth with the economic and social stresses of the pandemic receding, according to a new report by the Inter-American Development Bank (IDB).

Following the strong economic recovery of 2021–2023, the IDB reports that Caribbean economies continue to grow at a somewhat faster pace than the Latin America and Caribbean region, though country circumstances vary.

For example, economic growth in Guyana is expected to exceed 30 per cent this year, while tourism-oriented economies are expected to grow by only 2.6 per cent.

At the same time, economies are experiencing diverging growth rates, with the US growing faster than others, leading to different approaches to economic policies.

The IDB cited the example that the Eurozone may lower interest rates sooner and more decisively than the United States, where such a situation could create both risks and opportunities moving forward.

“Risks and Opportunities for Caribbean Economies in a Diverging World” is part of the IDB’s Caribbean Economics Quarterly report series, which focuses on the economic performance of The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago. This edition analyzes how global economic conditions may impact Caribbean economies.

Near-term Opportunities and Risks and Key Findings

The report identifies near-term opportunities, risks, and key findings from this edition, such as: “The evolution of global interest rate changes will eventually impact external financing costs for Caribbean countries. In addition, if US interest rates remain high (5.3 per cent federal funds rate as of May 2024) while other major central banks cut interest rates, then the US dollar will likely strengthen relative to other major currencies.”

The report assesses that such a move could imply real exchange rate appreciation for Caribbean economies with fixed exchange rates tied to the dollar, noting that: “Public debt to Gross Domestic Product (GDP) on average has returned to (already relatively high) pre-pandemic levels, averaging 74 per cent in 2023 for the countries analyzed. Further work on strengthening macro frameworks is a fundamental precondition for growth.”

The report highlighted that a renewed focus on regulatory reforms, human capital, and resilient infrastructure could make Caribbean economies “ready for take-off” to higher levels of growth, rather than returning to potential GDP growth pre-pandemic that was less than 1 per cent in tourism-oriented economies.

General manager for IDB’s Caribbean Country Department, Anton Edmunds, commented: “Caribbean economies have recovered well from the pandemic and the recent global economic headwinds. Now is the time to focus on the structural reforms at both the national and regional levels to promote more robust and sustainable growth.”

Caribbean Economics Quarterly is a publication dedicated to advancing economic understanding of Caribbean realities through the lens of The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.

With a commitment to fostering development, this IDB report continues to be a trusted resource for policymakers, academia, and businesses.