Economic contraction in the Caribbean: ECLAC

The United Nations’ Economic Commission for Latin America and the Caribbean (ELAC) has forecast economic contraction for the region this year.

In presenting the 2016 annual economic report on Tuesday, ECLAC said the region will contract -0.8 percent this year, marking a steeper decline than in 2015 (-0.5 percent.

The “Economic Survey of Latin America and the Caribbean 2016,” therefore, stresses “the urgent need to mobilize investment—both public and private—to promote the region’s economic recovery and meet the challenges imposed by the 2030 Agenda for Sustainable Development.”

“The capacity of countries to accelerate economic growth depends on the spaces for adopting policies that support investment. These policies should be accompanied by efforts to change the conversation between the public sector and private companies. Increasing productivity is also a key challenge for moving forward along a path of dynamic and stable growth,” said Alicia Bárcena, ECLAC’s Executive Secretary during a press conference in Santiago, Chile, where the report was presented.

The survey indicates that in the external arena, the global economy will maintain low levels of growth, which will be accompanied by a slow expansion in trade, “which has not managed to recover the levels seen before the international financial crisis,” according to ECLAC.

The report points to deteriorated prices for the region’s commodities exports and greater international financial uncertainty and volatility, “which have increased since the United Kingdom voted to leave the European Union, the so-called Brexit.”

“This decision has also produced greater risks to the world’s future growth,” ECLAC said.

In the regional sphere, the report forecasts a -2.1 percent contraction for South America in 2016, mainly due to a deterioration in its terms of trade, weaker external demand and a significant deceleration in domestic demand, “which reflects a sizeable fall in domestic investment.”

ECLAC said Central America will grow 3.8 percent, “thanks to the boost coming from its improved terms of trade, resulting from lower hydrocarbons prices; the recovery of its external and domestic demand; and increased income from remittances.

The Caribbean, meanwhile, will suffer a -0.3 percent contraction in its Gross Domestic Product (GDP), ECLAC said.

According to the ECLAC’s report, six countries are expected to show an economic contraction in 2016: Venezuela (-8.0 percent), Suriname (-4.0 percent), Brazil (-3.5 percent), Trinidad and Tobago (-2.5 percent), Ecuador (-2.5 percent) and Argentina (-1.5 percent).

On the other hand, ECLAC said regional growth will be led by the Dominican Republic (6.0 percent), Panama (5.9 percent), Nicaragua and Bolivia (4.5 percent), and Costa Rica (4.3 percent).

“Faced with an economic contraction, the region needs progressive structural change with a big environmental push that promotes development based on equality and sustainability, as we have proposed in our institutional document “Horizons 2030: Equality at the Centre of Sustainable Development,” which we presented in Mexico last May,” Bárcena said.

She said the economic deceleration will have an impact on the urban unemployment rate, which in 2015 was 7.4 percent and which is expected to increase to 8.1 percent in 2016.

Inflation, meanwhile, should behave similarly to that of last year, with greater pressures on southern economies, Bárcenasaid.

In its Economic Survey 2016 ECLAC calls for resuming the path of growth and mobilizing financial flows for development financing.

To achieve that, ECLAC urged regional countries to change their fiscal structures to improve tax collection and progressivity; strengthen income taxes, both for individuals and companies; and fight tax evasion and avoidance, which reached the equivalent of 6.7 points of the regional GDP in 2015, at an estimated US$340 billion.

Additionally, ECLAC said “it is necessary to promote renewed public-private coalitions and policies that create appropriate incentives to channel financing towards development goals.”

ECLAC said financial inclusion “should be strengthened as a policy of productive insertion through the creation of markets and new innovative instruments.”