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Market News

April 17, 2019

External shocks contribute to revised economic growth figures for region

WASHINGTON, United States (CMC) — The Inter-American Development Bank (IDB) says a combination of economic shocks could lower growth in Latin America and the Caribbean by an annual average of up to 1.7 per cent in 2019-2021 of gross domestic product (GDP).

In its macroeconomic report released in Washington DC, the IDB said that the new projections bring the baseline growth rate from 2.5 to just 0.8 per cent.

The report, titled “Building Opportunities for Growth in a Challenging World,” calculates the impacts of slower growth in the United States and Chinese economies, plus a rise in US interest rates.

It also calculates potential impacts on Latin America and the Caribbean caused by a disorderly Brexit -the UK exiting the European Union without an agreement in place, which could trim an additional half a percentage point from the region's growth projections.

“The potential impacts are of concern because Latin America and the Caribbean is already one of the regions with the slowest annual growth rates in the world,” said IDB Chief Economist Eric Parrado.

“We are hopeful that some of worst-case scenarios may be averted, and the report charts a course for the region to obtain a big growth boost by investing in much-needed transport, telecommunications and other infrastructure.”

The IDB calculations are based on a statistical model and the report includes a section on how countries can close the infrastructure gap.

The external shocks are calculated on China's GDP growing 0.9 per cent slower than expected per year, and the US growing 0.4 per cent slower than the baseline scenario for 2019 and 2020, plus a resulting financial shock from falling equity prices in the United States, the United Kingdom and the Euro area.

In addition, a one per cent slowdown in the UK due to Brexit would trim half a point from the region's three-year baseline scenario, underscoring the interconnectedness of the global economy.

On the positive side, the report notes that the region's larger economies could help counter the global economic headwinds.

It said a positive shock of just 0.3 per cent of GDP growth above baseline in the five largest economies would translate into about 0.5 per cent higher growth for Latin America and the Caribbean for each of three years, on top of the baseline 2.5 per cent growth — or a total increase of about 1.5 per cent of regional GDP.

The report also analyses country and corporate debt exposures and fiscal space for adjustments. Fiscal deficits remain high in many countries and further adjustment will be required to eventually stabilise debt-to-GDP ratios.

The IDB document identifies ways in which countries can enhance growth in the current context. More and better-targeted infrastructure investments can enhance growth prospects. Public investment is constrained by tight budgets, but the window of opportunity to pursue greater private financing is open in the context of low worldwide interest rates, the report says.

For the region on average, the estimates are that if countries can increase investment levels in infrastructure sectors enough to close the gaps with the Organisation for Economic Cooperation and Development (OECD) countries for example, then the economy-wide productivity growth could increase by 75 per cent with respect to the historical average.

Using detailed models for a set of representative Latin American and Caribbean countries, it is found that relatively small efficiency gains in infrastructure-related sectors can yield significant growth benefits to the region.

“On average, a five per cent increase in efficiency indicators could increase growth rates by 3.6 percentage points over a 10-year horizon,” the IDB added.

Article published April 16, 2019 on jamaicaobserver.com

Barbados: Signs of Recovery

WASHINGTON – Despite forecasting that the economy will shrink again this year, the International Monetary Fund (IMF) has told Barbados TODAY it’s convinced that the economy is now on a “sounder footing”.

The IMF is predicting a -0.1 per cent decline in the Barbados economy this year, likely to be the worst performance in the region, before bumping up to 0.6 per cent next year.

Deputy Director of the Western Hemisphere Department of the IMF Aasim Husain told Barbados TODAY the country’s position, compared to a year ago, is vastly different and from all indications is going in the right direction.

Recalling that Barbados had one of the highest debt levels in the world and precariously low levels of reserves, Husain said after entering a near-$600 million (US$290 million) Extended Fund Facility with the IMF last year, the country had already seen off a number of weaknesses in the economy.

“Our forecast for the moment for this year is just slightly negative growth of -0.1 per cent. So, basically, flat. But that marks a recovery from the past. And I think part of that is the start of new policies that are putting the economy on a sounder footing,” Husain said.

Pointing to the more than doubling of the reserves from a mere six weeks of import or $410 million at the end of December 2017 to approximately $1 billion as at the end of last year, the IMF economist said he was also pleased to see public debt on a downward trajectory.

“So, we hope that in future years, growth will also return.

“The big, headline going in to the (IMF) programme had been the very high level of public debt -160 per cent of GDP – and very low level of reserves. Those two issues are being addressed under the programme. That is in the process of being restructured.

“The bulk of public debt, which is the domestic part, has already been restructured, and negotiations with external creditors are underway.

“With this in process, fiscal consolidation underway as well and deep structural reforms also being undertaken, the economy is on sounder footing.”

The IMF’s director of the Western Hemisphere section Alejandro Werner, told Barbados TODAY he was upbeat about the economic prospects for the Caribbean this year and going forward.

He said the overall positive growth started some three years ago “on the back of an important resumption of tourism”, it and should be sustained.

He also pointed to the level of investment in some parts of the region as well as commodity exports, which he said were bouncing back.

Werner said: “We have seen that most of these countries have already absorbed the significant declining income coming from commodities after the declining commodity prices, and now all of them are coming back to growth.

“Obviously, the Caribbean continues to be a region within Latin America that is also exhibiting, not sufficient growth to satisfy the amount of the population and the needed increases in social indicators.”

He also pointed out that a number of regional economies were still struggling to manage high levels of debt.

Werner also acknowledged that the region remained exposed to natural disasters and other external shocks, which could grossly impact its positive outlook and leave economies with heavy financial burdens for several years.

He added: “So, we are developing financial frameworks for countries to manage financial implications of natural disasters in a much more effective way.

“We’re also trying to advocate for much more ex ante (before the event) financial support for these countries instead of ex post after the natural disaster has hit so that these countries are better able to manage the risk and are in a better position to invest in natural disaster resilient infrastructure.

“That is what our teams are working with many countries in the region, but obviously, it’s a work in progress.” (MM)

Article published April 17, 2019 on barbadostoday.bb

Tax savings for thousands of Saint Lucians under new tax reform

(PRESS RELEASE) — In a Budget Address that centred on people-centric growth and bringing relief to Saint Lucians, Prime Minister Honourable Allen Michael Chastanet announced personal income tax reform that would see thousands of low-income earners pay less and in some cases no personal income taxes.

This is a bold initiative and in keeping with the government’s promise of less onerous taxes on the people of Saint Lucia.

Under the theme “Growth by Empowerment for a Better Future” the minister for finance presented the Appropriation Bill 2019-2020, which focused on “opportunities that will propel every Saint Lucian to an acceptable standard of living and offer the chance to build wealth for themselves and their families”.

Part of this plan, explained the prime minister, was the reform of the personal income tax system to make it simpler, more progressive and less burdensome.

During his presentation to the House of Assembly on Monday, April 15, 2019, the prime minister explained the challenges and disadvantages of the current system, among them: the burdensome filing of a number of documents; many individuals find the tax computation complicated with the four tax bands and four tax rates; the system is not sufficiently progressive, as the greatest burden of taxation does not always fall on the higher income earners.

The prime minister explained that the new regime seeks to provide income tax relief to lower income earners.

“A large number of low-income employees will no longer be required to pay personal income tax, while others will benefit from reduced tax liabilities,” said PM Chastanet. “However, high income earners will be expected to pay more as a result of the progressive nature of the tax system. As such, the new regime is expected to be revenue neutral with no adverse impact on the government’s revenue collections from PAYE.”

Article published April 16, 2019 . Read more at stlucianewsonline.com

U.S. handbags, shovels on $20 billion EU tariff list over Boeing

BRUSSELS (Reuters) - Handbags, tractors, shovels and fish are part of an 11-page list of U.S. imports worth $20 billion that the European Union on Wednesday said it could hit with tariffs in a transatlantic aircraft subsidy dispute

The United States and the European Union have been battling for almost 15 years at the World Trade Organization over subsidies given to U.S. planemaker Boeing and its European rival Airbus.

After partial victories for both sides, each is asking a WTO arbitrator to determine the level of countermeasures they can impose on the other.

The Trump administration last week proposed targeting a seven-page list of EU products for tariffs, ranging from large aircraft to dairy products and wine, to counteract the harm from EU subsidies for Airbus worth an estimated $11 billion.

Brussels has responded with its own list of some $20 billion worth of U.S. imports, including agricultural produce from dried fruit to ketchup, planes, fish, tobacco, handbags, suitcases, tractors, helicopters and video game consoles.

The published list will now be open to consultation until May 31 and could then be revised.

“The EU remains open for discussions with the U.S., provided these are without preconditions and aim at a fair outcome,” EU Trade Commissioner Cecilia Malmstrom said in a statement.

In both cases, WTO arbitrators have yet to set an amount, but the U.S. case against Airbus is more advanced, with a ruling possible in June or July. The EU case against Boeing could come early in 2020.

Both sides have said they would prefer a settlement that did not lead to the imposition of tariffs.

The European Union has meanwhile declared itself ready to start formal trade talks with the United States.

The Commission is set to start two sets of negotiations - one to cut tariffs on industrial goods, the other to make it easier for companies to show products meet EU or U.S. standards.

However, it has insisted that agriculture not be included, putting the 28-country bloc at odds with Washington, which wants farm products to be part of the talks.

Article published April 17, 2019 on reuters.com