CARICOM commodity exporters to grow by 21.1% in 2022

The International Monetary Fund (IMF) is reporting that the economic performance of the Latin America and the Caribbean (LAC) region is losing momentum.

According to the October 2021 issue of Regional Economic Outlook for the LAC region, which is published by the IMF,  “the economic performance was robust in the first quarter of 2021 but lost momentum in some countries in the second quarter, reflecting the rebound in COVID-19 cases.”

Real Gross Domestic Product for the LAC is projected to grow by 6.3% in 2021, followed by a more moderate growth of 3% in 2022 but would not catch up with pre-pandemic trends in the medium term as persistent weakness in labor markets raises risks of scarring.

Specifically, tourism dependent economies in the Caribbean are slated to grow by 2.3% in 2021 and by 4.1% in 2022 whereas commodity exporting economies in the region are slated to grow by 5.6% in 2021 but accelerating to 21.1% in 2022.

Monetary and fiscal policy reversals would be inimical to economic growth

The IMF report argues that broadly favorable external conditions, high commodity prices and pent-up demand support short-term growth, while monetary and fiscal policy reversals would be inimical to economic growth. The report assessed that, “an economic recovery is underway in the LAC but the pandemic still casts shadows on much of the region.”

The IMF documents states that, “broadly favorable external conditions, high commodity prices, and pent-up demand support short-term growth, while monetary and fiscal policy reversals work in the other direction. Risks to the outlook are tilted downward.”

The main downside risks are the emergence of more transmissible and deadlier COVID-19 variants, tightening of global financial conditions, sovereign debt rollover risks, and social unrest as a year with heavy election schedule looms.

The research team suggested that “fiscal policy should allocate sufficient resources for health spending, including vaccination and continue to support households and firms in a more targeted fashion while the pandemic persists, backed by credible assurances of medium-term debt sustainability to maintain access to finance.”

However, the research team acknowledged that monetary policy has started to address inflationary pressures but should continue to support economic activity insofar as the dynamics of inflation expectations permit.

“Financial policy should shift from blanket support to targeted support of viable firms, to ensure that necessary labor and capital reallocations are not hindered. Supply-side policies should foster inclusive growth, including through progressive and growth-friendly tax reforms and measures to intensify climate change adaptation and mitigation,” the research team concluded.