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Cuba, Dominican Republic and Puerto Rico Country Risk Report Q1 2016

Cuba, Dominican Republic and Puerto Rico Country Risk Report Q1 2016

Core Views

A gradually improving tourism sector and strong private consumption growth will drive robust real GDP growth rates in the Dominican Republic in the coming years.

Puerto Rico to remain in a recession through 2015 amid high unemployment and weak investment, and see a high likelihood of additional defaults following the missed debt servicing payment by the Public Finance Corporation.

Reforms in Cuba are headed in a positive direction, and investor interest is on the rise, however the country’s transition towards a more market-oriented economy will be slow, as illustrated by the incremental steps towards abolishing the dual exchange rate regime.

Major Forecast Changes

Slumping precious metals production in an environment of low commodity prices have led us to revise down our forecast export growth in the Dominican Republic, which will in turn weigh on real GDP growth. We forecast real GDP expansion of 4.9% in 2015 and 5.4% in 2016, compared to our previous projections of 6.4% and 6.2% respectively.

We have also downgraded our growth forecasts for Puerto Rico, due to significant fiscal tightening and reduced private investment. We forecast real GDP will contract by 0.6% in FY2015, and grow by an average of just 0.7% from FY2016 to FY2019.


Executive Summary
Core Views
Major Forecast Changes
Key Risk
Chapter 1.1: Political Outlook - Cuba
Domestic Politics
On The Ground: Green Shoots For Reform, But Long Road Ahead
While hopes are high in Cuba that greater integration in the global economy will spur increased investment and stronger growth, many
investors remain on the sidelines, awaiting action by the US Congress to fully remove sanctions on the island.
TABLE: POLITICAL OVERVIEW
TABLE: CURRENCY CONVERGENCE TO BEGIN IN 2016
Long-Term Political Outlook
Political Change To Come, Despite Legacy Of Intransigence
The Cuban political system is heading for substantial change and uncertainty, as the Castro brothers prepare to leave office in 2018
after more than 50 years in power.
Chapter 1.2: Economic Outlook - Cuba
Telecoms Outlook
Mobile Entry First Step Towards Liberalisation
The Cuban telecoms market is opening, in what we believe will be a long-term process. Tourists will first be targeted, then the new
businesses operating from Cuba, and finally the local population.
TABLE: CURRENT ACCOUNT
Tourism Outlook
Strong Tourism Expansion Ahead, Despite US Sluggishness On Sanctions
The Cuban tourism sector will continue to gain momentum, the beneficiary of increased interest in the island following improving
relations with the US, as well as broader growth in the Caribbean region's arrivals.
Chapter 1.2: 10-Year Forecast - Cuba
The Cuban Economy To 2024
Reforms And Global Integration To Drive Stronger Growth Over The Next Decade
Economic growth in Cuba will pick up in the coming decade, due to incremental reforms on the part of the government and greater
engagement with the global economy.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
TABLE: THE CUBAN BUSINESS ENVIRONMENT TWO-STEP
Chapter 2.1: Political Outlook - Dominican Republic
Domestic Politics
Tensions With Haiti To Weigh On Exports
Tensions between the Dominican Republic and Haiti will remain elevated over the coming years as more challenging policymaking
environments in both countries limit room for compromise.
Long-Term Political Outlook
Economic Improvements To Support Policy Continuity
Government policies will remain business-friendly in the Dominican Republic in the coming years, as strong economic growth ensures
the current political direction of the country remains popular.
Chapter 2.2: Economic Outlook - Dominican Republic
Economic Growth Outlook
Accelerating Tourist Arrivals Will Boost Private Consumption
A strengthening tourism sector will bolster job creation in the Dominican Republic, supporting robust private consumption growth in 2015
and 2016.
TABLE: GDP BY EXPENDITURE
External Trade And Investment
Tourism Will Drive Narrower Current Account Deficit
The Dominican Republic's current account deficit will remain modest in the coming years, as rising tourist arrivals bolster the services
trade surplus, offsetting a contraction in mining exports.
TABLE: CURRENT ACCOUNT
Chapter 2.3: 10-Year Forecast - Dominican Republic
The Dominican Republic Economy To 2024
Recovery In Tourism To Drive Growth
The Dominican Republic's economic outlook is bright over the next decade, with the country set to benefit both directly and indirectly
from growth in the US.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3.1: Political Outlook - Puerto Rico
Domestic Politics
PPD Will Face Difficult Electoral Landscape In 2016
The electoral landscape for the November 2016 general election will be highly challenging for Puerto Rico's ruling PPD.
TABLE: IMPACT OF PUERTO RICO STATEHOOD ON SELECT FEDERAL PROGRAMMES
Long-Term Political Outlook
No Change In Sight To Political Status With The US
Puerto Rico's political status as a territory of the US is unlikely to change over the coming decade, given the unfavourable tax effects
that statehood would imply for residents.
Chapter 3.2: Economic Outlook - Puerto Rico
Economic Growth Outlook
Economic Stagnation Will Persist
Puerto Rico's economy will fail to gain momentum in the coming quarters as a lack of job prospects in high value-added sectors limit
improvements in the labour market.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy And Public Debt Outlook
Major Restructuring Looming
A broad restructuring of Puerto Rico's debt is highly likely in the next several quarters.
Chapter 3.3: 10-Year Forecast - Puerto Rico
The Puerto Rican Economy To 2024
Growth Will Remain Subdued Amid Unfavourable Demographics
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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