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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