By: Staff Writer
March 21, 2023
The Inter-American Development Bank in their latest report, “Preparing the macroeconomic terrain for new growth,” highlighted that the Caribbean is one of the most tourism dependent in the world with The Bahamas and Barbados leading the way.
The report said: “Many Latin American and Caribbean countries rank among the most dependent on tourism. The Tourism Dependency Index (TDI) developed…. Based on the relative contribution of the sector to GDP, exports, and employment, suggests that Latin American and Caribbean countries are arguably the world’s most tourism-dependent. The TDI ranks 175 countries globally across all regions and finds that about half of the 20 most tourism-intensive economies on earth are in the Caribbean.”
“While these Caribbean economies tend to be relatively small in size and population, tourism is significant for some of the largest countries as well. From 2017 to 2021, it is estimated that tourism accounted for an average of over 16% of both economic output and employment in Mexico, and about 10% of both GDP and total employment for Uruguay, Argentina, and Chile. In Brazil, it is estimated that tourism contributed about 8% of both output and employment. In aggregate, about 28 million Latin American and Caribbean citizens depended on the tourism sector for some part of their incomes and livelihoods in 2018.”
It is no secret that the Caribbean with its vibrant sun, sand and sea is an attractive landscape to the average traveller on their way. The tourism product is what has kept the region afloat in the face of little to no other sector outside of banking/offshore financial services and to some degree, oil and natural gas as in Trinidad and Venezuela.
The road ahead will be tough as significant headwinds face the entire Latin American and Caribbean region. “Latin American and Caribbean countries face a year in which global demand may be depressed—compensated partially by the reopening of China following its strict COVID-related shutdowns—and high financing costs. In some countries still struggling to stabilize inflation, financing costs may continue to rise. Against this backdrop, countries in the region still have policy room to manoeuvre and avoid deeper than needed economic contractions that could further derail them in closing the social, fiscal, and growth gaps that constitute their triple challenge.”
In addition, inflationary pressure is still a major concern with inflation primarily driven by several factors post COVID-19, “Global factors such as U.S. inflation, commodity prices, and international shipping costs account for at least one-third of the variation of the principal component….External factors are major drivers of the surge in inflation in the region after the pandemic lockdowns.”
The report also said: “In all cases, inflation and inflation expectations respond significantly and rapidly to a shock in fuel prices. The size and duration of the impact varies across countries. A key feature of these countries is the existence of some type of fiscally supported mechanism to reduce the impact of global fuel prices on domestic fuel prices. The most likely transmission channel may be through the increase in the cost of imported goods and services. The size of the impact and the persistence and dynamics of the transmission may relate to the idiosyncratic functioning of each gasoline price smoothing mechanism.”
The report concluded: When the region was still recovering from the COVID-19 pandemic, Russia’s war in Ukraine disrupted several markets and brought new challenges. With the war, regional and global growth perspectives plummeted, and financing costs rose. Even so, 2022 was a better-than-expected year for Latin America and the Caribbean.
“In April 2022, the IMF forecasted growth at 2.5% for the year. It subsequently upgraded its projection to 3.5% in October, and current estimates suggest that growth was 3.9 percent.
“Inflation rose everywhere in 2022, and the region was no exception. The median annual inflation rate in Latin America and the Caribbean reached 9.6 percent in July 2022, the highest since the global financial crisis in 2008. And this was the pattern for all Latin American and Caribbean countries, regardless of their monetary policy regimes. This price behaviour reflected increased commodity prices, fertilizer prices, supply chain constraints, and pent-up demand from the COVID-19 crisis. As a result, central banks increased rates by more than 500 basis points in only one year. Poverty and inequality levels returned to pre-pandemic levels as labour market conditions improved.
“By September 2022, employment had surpassed its pre-pandemic levels. A critical question is whether these gains will prevail as inflation and uncertainty about economic perspectives remain elevated. Since economic growth is the primary determinant of poverty reduction, policymakers should focus on measures to avoid contractions in the short term, and reforms to boost productivity growth in the medium and long run.”