Will Cuba have economic growth in 2018?

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Raúl Castro is set to leave the presidency in April, following the Cuban government’s announcement of a mild recovery out of a recession. It’s an unfortunate end to his rule, which started with grand aspirations to energize the economy.

Plummeting oil deliveries from Venezuela, low global prices for key exports, natural disasters, and a negative business outlook from fractured U.S.-Cuba relations all contributed to the Cuban government reporting 1.6 percent GDP growth in 2017 and a 0.9 percent contraction in 2016.

Those factors, among others, will likely continue to afflict the Cuban economy in 2018. But some economists foresee minor growth. The Economist Intelligence Unit, Moody’s Investor Services, and the United Nations’ Economic Commission for Latin America and the Caribbean (CEPAL) recently projected Cuba’s economic growth in 2018 to be 1.3 percent, 1.1 percent, and 1 percent, respectively.

The projections are promising for a country that many economists expected to end 2017 in a recession, though they still lag behind the 2.2 percent growth CEPAL projects for the economies of Latin America and the Caribbean in 2018. It’s also too early to tell exactly how the Cuban economy will perform in the hands of somebody not named Castro – or under one of Raúl’s relatives who may take the helm.

“On one hand, it creates more uncertainty and businesses hate uncertainty,” said Emily Morris, associate fellow of the University College of London’s Institute of the Americas. “On the other hand, some businesses might think that there might be more possibilities.”

Cuba will continue to count on tourism for economic growth. The country welcomed a record 4.3 million visitors by November 2017, and it’s likely to post solid, albeit lower, numbers in the new year.

“We do not believe [Cuba] will maintain its growth rate for 2018, given the already visible decrease in American tourism due to the diplomatic crisis generated by the ‘sonic attacks’ on U.S. diplomats,” said Emilio Morales, CEO of the Havana Consulting Group.

The Trump administration’s new regulations on travel and business with Cuba is expected to reduce the flow of U.S. visitors, but it doesn’t shut the door completely. American leisure travelers can still visit the island with authorized tour groups and cruise ships. Cuba can also count on visitors from other countries. Canada, Germany, England, France, Italy, Spain, and Mexico regularly send more than 100,000 tourists each to the island annually.

Besides tourism, Cuba is counting on the agriculture sector to recover after sustaining damage from Irma.

Cuba’s dependence on subsidized Venezuelan oil will continue to impede the country in 2018. Reduced deliveries of crude have not only lead to fuel rationing and blackouts, they have curtailed currency inflows from the re-export of unused fuel.

The Cuban economy is also expected to feel the strain of low global prices for two of its most valuable export commodities: sugar and nickel. Sugar and tobacco output could also take a hit in 2018 due to hurricane destruction. Additionally, Morales projects reduced remittances from the U.S. because the Obama administration ended the “wet foot, dry foot” policy that gave Cubans who arrived on U.S. soil without a visa a pathway to permanent residency.

“Under these scenarios, it is very difficult to foresee the Cuban economy having a positive performance in 2018,” Morales said. “The successor of Raúl Castro has a great challenge ahead.”

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