by Kari Grenade, PhD, Caribbean Economist and Macroeconomic Advisor
In October, the International Monetary Fund (IMF) forecasted that global growth would decelerate to 2.7% in 2023 from 3.2% in 2022.
Two months later, the IMF indicated that the prospects are rising and that global growth will drop below 2% in 2023. What is clear at this stage is that 2023 could be a rough one for the global economy. Already, the world’s 3 largest economies (the US, China and the Euro Area) are slowing down markedly.
For sure, an acute global economic slowdown seems likely at this stage, and if certain risks materialise, a global slowdown can swiftly deteriorate into a global economic recession. A lot depends on the nature and duration of the war in Ukraine, economic and health outcomes in China following the discontinuation of its zero-Covid policy, the persistence of inflation, and how high US interest rates go. If the war persists and/or escalates, global economic volatility and uncertainties could intensify. One only hopes that a resolution is forthcoming. If China’s exit from its zero-Covid policy does not go well, the health consequences could be dire, which can exacerbate its economic slowdown and by extension, that of the global economy. Of course, a more sanguine scenario is also possible in which its exit does go smoothly, jolting an economic rebound in China and pushing up global growth. Should high US inflation persist, the US Federal Reserve’s benchmark rate could exceed 5%, which could have serious implications for global financial markets.
Indeed, some low-income developing countries are already facing a debt crisis because of high and rising interest rates that have tightened global financial conditions. Some are also facing a broader economic crisis having been buffeted by a series of economic shocks including climatic events, spiralling inflation, and the adverse effects of the pandemic and the Russia-Ukraine war.
Caribbean countries have to brace for possible further economic turbulence in 2023. Policymakers must therefore be prepared to take concrete actions to protect their economies and shield their people as best as they are able to. These are certainly not ordinary times and no ordinary solutions will do. Caribbean policymakers will have to do better in addressing prevailing challenges while simultaneously staying focused on advancing their sustainable development and resilience-building agendas. This would require that they be more agile, results-focused and innovative in confronting challenges as they invariably arise. Moreover, it would also require transformative shifts in economic management, practices and institutional arrangements to prevent recent sub-par growth performance from degenerating into a secular stagnation or worse.
For sure, policymakers would have to be intentional about equipping themselves with the correct tools to address the inevitable challenges head-on. Appropriately-calibrated policies would be the order of the day. In the final analysis, country idiosyncrasies will determine individual policy responses in managing economic stress, protecting hard-earned development gains, and building resilience on several fronts. These are perhaps some of the most important priorities for Caribbean governments in 2023.
Mistake commenting all Caribbean countrys into one…..Bahamas basics differs and should not be thrown into same box.
Bahamas issue is basic..reduce.massive tax arrears…prepare for Debt redemption…restrain spending. Basic economix disciplines.