The IMF said growth in the Caribbean would slow to 4.4 per cent this year and 3.8 per cent next year, compared to 5.7 per cent growth in 2007.

BRIDGETOWN, Barbados, CMC – The International Monetary Fund (IMF) is predicting a dramatic slowdown in the economic growth of Caribbean countries over the next two years because of a recession in the United States and turmoil in worldwide financial markets.

 

In its latest World Economic Report released Wednesday, the IMF said growth in the Caribbean region would slow to 4.4 per cent this year and 3.8 per cent next year, compared to 5.7 per cent growth last year.

 

The Washington-based financial institution said that overall world economic growth would slow to 3.7 per cent in 2008 and 2009, just over one per cent lower than the growth recorded in 2007.

 

The IMF said that the downturn would be led by the US economy which would go into a “mild recession” this year, growing by only 0.5 per cent after contracting in the first half of 2008.

 

“The global expansion is losing speed in the face of a major financial crisis. The slowdown has been greatest in the advanced economies, particularly in the United States, where the housing market correction continues to exacerbate financial stress,” the IMF report stated.

 

At the same time, the IMF said “headline inflation has increased around the world, boosted by the continuing buoyancy of food and energy prices”.

 

“The overall prognosis is that resilient economies will be dampened but not overwhelmed by the slowdown in the United States and other advanced economies and by the dislocation in international financial markets,” it said.

 

While the IMF did not provide a breakdown of the various economies of the region, it showed that the slowdown would be on par with other countries in the Western Hemisphere.

 

It said that while economic activity in Latin America “grew by a robust 5.6 per cent in 2007, slightly stronger than in 2006”, Caribbean economies slowed by 2.1 per cent over the corresponding period “as a construction boom wound down”.

 

The IMF is also predicting that the rate of growth of imports into rich countries is expected to slow sharply, leading to a cut in the rate of growth of exports by developing countries. It also warned that the spill over would be more severe in countries linked to the US dollar since the currency has declined sharply on world markets.

 

Meantime, despite recent measures implemented by governments of the Caribbean Community (CARICOM), including the removal of the Common External Tariff (CET) from a number of basic food items, consumer prices in the Caribbean will also increase by 7.9 per cent this year before sliding back to 5.7 per cent in 2009, according to the IMF.

 

It said inflation could accelerate this year to 6.6 per cent across the region, before subsiding in 2009 to 6.1 per cent. This would still be higher that the 5.4 per cent registered in 2007.

 

Additionally the IMF said that rising prices, especially for food and energy, could make it difficult for central banks to cut interest rates.

 

“The scope for easing could be hampered by the need to bring inflation back down to within target ranges in a number of countries,” the IMF added.

 

CMC/bm/pr/08