Developments in the world economy that Guyana must pay attention to

Perhaps for the first time in recent history, most of the country’s key industries— sugar, rice, bauxite, and forestry – have found themselves in various states of misery. This is aptly reflected in the fact that the economy last year, recorded a 2.6 percent growth rate.

As such, it becomes imperative for the relevant authorities to be watchful of the developments in the global economy.

According to data provided by the Ministry of Finance, slow global growth and weakness in global trade continue to hamper progress in many economies. While global growth rebounded in 2010, following the financial crisis of 2008, it has trended downwards since.

In October 2016, the World Economic Outlook (WEO), a publication of the International Monetary Fund (IMF), projected that global growth will reach 3.1 percent, slightly less than the 3.2 percent achieved in 2015.

The authorities believe that growth in advanced countries is projected to weaken by half of a percentage point relative to 2015. This decline is partially explained by the weaker-than expected economic performance of the United States of America (US), due to weak investment and a decline in labour productivity.

As for growth in the United Kingdom (UK) and the rest of Europe, this is also projected to fall in 2016 as the region comes to grips with the Brexit reality. On the other hand, economic growth in emerging market and developing economies is expected to improve in 2016, rising to 4.2 percent from the 4 percent achieved in 2015. This reflects reduced concerns about near-term growth in China and expectations that advanced countries will keep interest rates low.

With regard to 2016, the authorities here believe that the year has been especially difficult for Latin American and Caribbean economies. It noted that the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) projects that, as a whole, the region’s economy is expected to contract by 0.9 percent, reflecting economic crises in Brazil, among other countries.

A number of commodity exporting countries, including Suriname and Trinidad and Tobago, are expected, also, to experience negative growth rates as a result of low oil prices.

The region’s economic performance is projected to improve this year with growth rising to 1.5 percent. Despite this improved outlook, the region still faces serious downside risks, including adverse weather events, such as Hurricane Matthew, which devastated several Caribbean countries in 2016, commodity prices volatility, and the real threat that the continued loss of correspondent banking relationships could severely curtail financial services in the region and precipitate a financial crisis.

While both the Financial Action Task Force (FATF) and the Financial Stability Board (FSB) have recommended the adoption of international best practices to facilitate better intermediation between respondent and correspondent banks, the continuous engagement of US banking regulators is seen as the most promising step to assuage the nervousness occasioned by de-risking.

Furthermore, prices for many commodities recovered considerably in 2016 and most commodity prices are expected to rise modestly in 2017. World market prices for rice and sugar rose in 2016 and are projected to remain roughly at current levels in 2017.

The international price of gold rose by over 7 percent in 2016, but may face downward pressures in 2017, in light of a likely increase in interest rates in the US and the tapering off of the European Central Bank’s (ECB) bond-buying programme.

Conversely, the price of aluminum remained low, in 2016, but is expected to recover this year. The price of crude oil, a key import for Guyana, is expected to average US$55 per barrel in 2017, up from an average of US$43 so far in 2016.

The magnitude of the increase could be less if the Organization of Petroleum Exporting Countries (OPEC) is unable to reach an agreement to limit output.

The threat of gold prices declining in 2017, combined with rising oil prices and global issues such as de-risking and climate change, will pose a major risk to our economy that will demand enlightened management.

According to Minister of Finance, Winston Jordan, our relatively undiversified economy leaves us particularly vulnerable to these external shocks, as well as internal financial distress in our major industries.

The Government has vowed that it will continue, therefore, to implement policies designed to maximize opportunities and minimize the damage that emanate from such risks.