— but says economy expected to contract in 2017 and 2018

THE WORLD BANK has projected that Guyana’s economy will grow 4 per cent this year, but is forecasting a decline in growth in the years 2017 and 2018.

In 2015, Guyana’s economy grew 3 per cent, down from 3.8 per cent in 2014, and 5.2 per cent in 2013.

According to the Banks in its latest forecast, which is subject to change due to global circumstances, Guyana’s economy is expected to grow 3.9 per cent in 2017, and 3.8 per cent in 2018.

The Bank noted that South America is particularly hard hit because three large economies – Argentina, Brazil, and Venezuela — are in recession.

It also noted that other South American countries, including Bolivia, Chile, and Colombia, have also slowed.

In contrast, the Mexico and Central America sub-region has registered relatively stronger growth due to their close economic ties to a steadily growing United States.

The Bank explained that these economies have benefitted from competitiveness gains, which were due to currency depreciation and more robust consumption, supported by falling unemployment and moderating inflation.

Similarly, the Caribbean, which also enjoys close ties to the United States, is being lifted by a booming tourism sector, it said.

The region is forecast to contract by 1.3 per cent in 2016 after a 0.7 per cent decline in 2015, the first back-to-back years of recession in more than 30 years.

According to the World Bank, it is projected to begin expanding again in 2017, gradually gaining momentum to around 2 per cent in 2018.

“Prospects vary across the region: South America is anticipated to contract by 2.8 per cent this year, and have a mild recovery in 2017, followed by a strengthening of output growth to 1.7 per cent in 2018.

“In contrast, supported by ties to the United States and strong exports, output in the Mexico and Central America sub-region and in the Caribbean is expected to grow at around 3 per cent in 2017 and 2018,” the Bank said.

Brazil is forecast to contract by 4 per cent in 2016 amid attempts at policy tightening, rising unemployment, shrinking real incomes and political uncertainty.

The Bank said if political uncertainties persist, the implementation of fiscal initiatives may be delayed, further weighing on investment.

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As a result of ongoing macroeconomic adjustments and structural reforms, it said that activity in Argentina is expected to decline modestly in 2016, before picking up on a firmer basis in 2017-18.

“Capital inflows are expected to pick up following a formal exit from technical debt default and restored access to international debt markets, and a return of investor confidence,” the report contended.
Net exports will benefit from a significantly weaker Argentine peso, the bank said.

In contrast to South America, the Mexico and Central America sub-region is more closely linked to the US economy through trade, investment, and remittance flows. Growth, the bank said is expected to remain broadly unchanged in 2016, due both to the protracted decline in agricultural commodity prices and to fiscal consolidation across the sub-region.

It said a modest increase in growth should follow in 2017-18, as the real depreciation of local currencies spurs net exports and the U.S. economy continues to expand.

“Household consumption is expected to continue picking up, as real incomes are supported by low inflation and falling unemployment, particularly in Mexico, which is expected to grow by 2.5 per cent this year.

“In a number of Central American economies, domestic monetary policy is expected to remain largely accommodative in the short- and medium-term, with low inflation rates encouraging investment. “Stronger investment growth is also expected in Mexico, as benefits from recent structural reforms materialise. Despite strong tourism, growth in the Caribbean region will slow in 2016, representing a normalisation from a bumper year in 2015,” the Bank said.

It also noted that major tourism-associated construction is winding down, and a number of Caribbean economies are pursuing fiscal consolidation to strengthen public finances and lower heavy public debt burdens. While the Zika virus outbreak poses a substantial downside risk, the Bank said tourism is expected to continue to expand and support growth and fiscal consolidation in several Caribbean countries will weigh on growth in the medium-term.

“Should commodity prices drop further, falling fiscal and export revenues are likely to trigger additional policy tightening and weigh on growth. External debt across the region has been increasing, much of it denominated in foreign currency, particularly US dollars.
Further increases in debt ratios could lead to sovereign credit downgrades. Recessions in Brazil and República Bolivariana de Venezuela have yet to bottom out and could last longer than previously expected. There is a risk that these recessions may spill over to other countries in the region,” the Bank said.