Region’s economic growth stabilizes in 2016

In contrast to other sub-regions in Latin America, Central America and the Caribbean, with its close geographical and economic ties with the United States, is benefitting from the gradual recovery of the U.S. economy as well as from the fall in oil prices. Falling commodities prices led to some divergence in the terms of trade of some economies within the region, especially between oil exporters and oil importers. Declining prices for oil, metals, as well as agricultural goods worsened the terms of trade for commodities exporters, but improved the terms of trade of commodities importers. The region as a whole, however, benefited from lower oil prices as Central America and the Caribbean is a net importer of hydrocarbons. On balance, the region’s current account deficit is expected to improve from 2.4% of GDP in 2014 to 1.3% of GDP in 2015 and remain relatively stable at 1.5% of GDP in 2016.

Economic growth in Central America and the Caribbean performed relatively well in 2015. Following a mild deceleration in the second quarter, the region’s economy picked up pace in the third. According to FocusEconomics Consensus Forecast, the economy of Central America and the Caribbean is expected to have increased 3.1% year-on-year in Q3, which came in above the 2.8% expansion registered in Q2.

The economic outlook for the region remains stable and Central America and the Caribbean is expected to continue benefiting from the gradual recovery in the U.S. economy. Following an expected 3.0% expansion
in 2015, analysts participating in this month’s FocusEconomics Consensus Forecasts see the region’s GDP increasing 3.2% in 2016. This month’s forecast matched the previous month’s projection. At this rate, growth in Central America and the Caribbean will be faster than in Latin America as a whole, which is expected to expand only a timid 0.6% next year.

Looking at the countries in the region, the outlook for 2016 was revised down for Haiti, Honduras, Panama, Jamaica and Trinidad and Tobago. Forecasters left their GDP growth projections unchanged for the rest of the economies surveyed, with the exception of the Dominican Republic, whose GDP growth forecast was revised up. In 2016, Panama is projected to be the region’s fastest-growing economy with an estimated 6.3% expansion. The Dominican Republic remains close behind with a projected 5.1% growth rate. Puerto Rico will be the worst performer as its economy is foreseen contracting by 0.7%.

Inflation remains subdued. Inflation outlook continues to moderate. Inflationary pressures in Central America and the Caribbean are expected to remain contained for the remainder of 2015. A FocusEconomics estimate showed that inflation in the region rose from 1.9% in September to 2.1% in October. Inflation has hovered around 2.0% in the last three months and is foreseen to moderate at the end of the year.

Forecasters polled by FocusEconomics this month expect inflation to end this year at 1.8%. As low oil prices continue to dampen consumer prices, analysts cut the region’s inflation projection by 0.4 percentage points over the previous month’s projection. For 2016, panelists see inflation rising gradually and reaching 2.8% at the end of year. The 2016 inflation forecast was cut from last month’s 3.1% projection and reflected lower inflation projections for six of the twelve economies surveyed, including sizeable cuts in Costa Rica, Panama and Puerto Rico. Inflation forecasts for Belize, Honduras, Nicaragua and Jamaica were left unchanged, while projections for Guatemala and Haiti were raised compared to the previous month.

Reviewed by: Gyanchand Rayman