[dropcap]S[/dropcap]aint Lucia struggled to maintain growth in 2018, while the regional and global economy faced a myriad of challenges. This time last year, the Caribbean was licking its wounds. Following a devastating hurricane season and a resulting slowdown in the tourism industry, the region’s economy was faltering and the fiscal future looked worrisome. Happily, the dire predictions from economic pessimists did not materialise and while 2018 was a year of uncertainty and challenges, it was also the year that the Caribbean regained its footing. The Economic Commission for Latin America and the Caribbean (ECLAC) predicts 1.9 per cent growth this year in marked contrast to the paltry 0.2 per cent seen in 2017.
Saint Lucia struggles
While the region is making a slow but steady recovery, Saint Lucia’s economic performance dipped slightly. Buoyed by heavy public investment, stable FDI and a strong tourism sector in 2017, the country failed to carry this momentum into 2018 and GDP growth dropped from 3.7 per cent in 2017 to 2.5 per cent for the year, according to ECLAC.
As with many of its Caribbean neighbours, national debt continues to be an issue in Saint Lucia, with gross public debt amounting to 59 per cent of GDP in the second quarter of 2018. As the debt grows, so too do interest payments which accounted for 3.8 per cent of GDP. And there are growing concerns that Saint Lucia’s debt profile will worsen into 2019 following last month’s news that the government will borrow US$100m to redevelop Hewanorra International Airport.
For the average citizen, the grassroots economics continue to paint a negative picture. According to the International Labour Organization, unemployment in the Caribbean fell from 8.1 per cent in 2017 to 7.8 per cent in 2018 but this slight improvement was not reflected in youth employment. Saint Lucia continues to have one of the highest youth unemployment rates in the region, at 38.5 per cent — well above the 2018 regional average of 19.6 per cent.
In addition to troubling rates of unemployment, inflation rose substantially between October 2017 and June 2018 going from 0.8 per cent to 1.9 per cent in those nine months. The biggest hikes were seen in food and beverages, prices for which rose 4.8 per cent, and gas and fuel which climbed by 12.6 per cent putting more pressure on household bills.
Last year also saw some positive economic gains however. Saint Lucia’s tourism sector had a banner year in 2018, continuing its role as the primary pillar of the domestic economy. The World Travel and Tourism Council estimates that travel and tourism contributed US$622.2m to Saint Lucia’s GDP in 2017 and expected this number to grow by 5.1 per cent in 2018. The organisation also forecasts a 5.7 per cent annual growth rate through to 2028.
There was also good news in the agricultural sector where a 29.9 per cent rebound in domestic exports of food in the first half of 2018 pointed to a recovering industry, according to a CIBC market report. Exports of domestically produced manufactured goods also rose by 26.3 per cent.
The global and regional context
Saint Lucia’s economic performance for 2018 must be judged in both a regional and a global context. Global economic growth reached 3.2 per cent in 2018, a slight drop from 4.6 per cent the previous year. Worldwide, many economies struggled thanks to a backdrop of mounting trade tensions and volatile financial markets. Increasingly negative relations between China and the US contributed to a slowdown in world trade which dropped from 4.6 per cent in 2017 to 3.9 per cent in 2018. Uncertainty surrounding the future of the World Trade Organisation and its expected reform, combined with the looming threat of Brexit in 2019 and political upheaval within the Eurozone, mean that trade will most likely continue to be sluggish this year.
Global liquidity held stable in 2018 but the beneficiaries tended to be developed nations rather than the perceived ‘high-risk’ emerging economies. Of those developing economies, Turkey took the lion’s share of global credit in the second quarter of 2018, followed by China, Mexico and Indonesia. As liquidity remained strong, global debt levels rose across the board and the shadow banking sector expanded.
More uncertainty on the horizon
In the past year, the Caribbean’s greatest economic challenges reflected the region’s longstanding issues — the need for responsible public expenditure, failure to diversify domestic economies and dwindling inflows.
External financing continues to be an area of concern as 2019 will bring more uncertainty, stifling appetite from developed nations to risk investment in emerging economies. Looking ahead, the island nations most likely to withstand geopolitical fluctuations will be those who have their fiscal house in order. The IMF has identified several areas of weakness in Saint Lucia’s economy, including climbing public debt, poor fiscal sustainability, lack of resilience to natural disasters, high unemployment and a failure to fully mine the potential of the booming tourism sector by building linkages to other industries.
ECLAC predicts that the Caribbean economy will grow 2.1 per cent in 2019, while Saint Lucia will see growth of 2.9 per cent. The IMF is more optimistic in its estimates, forecasting 3.5 per cent GDP growth for Saint Lucia in 2018, and 3.7 per cent in 2019.
While the Caribbean is maintaining a modest growth trajectory, ECLAC Executive Secretary Alicia Barcena warned the region: “The active role of fiscal policy in terms of revenue and spending must be bolstered. In terms of expenditures, in order to stabilize and invigorate growth, public investment must be reoriented toward projects that have an impact on sustainable development. All of this while protecting social spending, above all in periods of economic deceleration.”
