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World Bank warning on Caribbean growth

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WASHINGTON DC—The World Bank has warned that growth in the Caribbean “will be held back” by large fiscal adjustments necessary to bring fiscal deficits to sustainable levels and help reduce public debt burdens.

“Growth in the Caribbean continued to disappoint, decelerating to three per cent in 2012 as growth decelerated in the Dominican Republic and in Haiti, while Jamaica’s economy fell into recession,” said the Washington-based financial institution in its Global Economic Prospects, June 2013.

“Regional growth in the first quarter as approximated by industrial production softened, with industrial production remaining relatively flat, after a slight contraction in the fourth quarter, with growth decelerating to slightly below potential, the positive output gap nearly closed in 2012,” the report continued.

Overall, the World Bank said growth in the Latin America and the Caribbean region decelerated an estimated 1.4 percentage points to three per cent in 2012.

In per capita terms, it said growth has fallen below two per cent for the first time since the global crisis.

The decline in growth was partly due to “bottlenecks that constrained growth in some of the larger economies in the region, partly because of softening in global activity mid-year due to Euro Area uncertainty, and partly because of a decline in non-oil commodity prices.”

But even with gross domestic product (GDP) growth below potential in 2012, the report said the positive output gaps that opened during the recovery from the 2009 crisis “still persist or have only now closed.”

The World Bank said slower domestic consumption, in conjunction with weak external demand, caused economic activity to slow in many countries in the region, stating that inflation rates in the region have remained “relatively anchored” for the most part, especially core inflation, “although they have remained stubbornly high or even accelerated in countries where economic output is at or near potential.”

The report said lower food and energy inflation also contributed to the decline in inflation in Central American economies, while inflation in some of the Caribbean economies was “low on account of weak domestic demand.”

The Bank pointed to strong domestic demand in many countries in the region and in some cases small or positive output gaps which led to a “worsening in current account positions in 2012.” (CMC