The world is registering convulsive moments and not only due to climate change and its incidence in atmospheric phenomena and a prolonged drought. If not, given the high volatility of the markets, and the banking crisis in the United States and blows in Europe, the risk for middle-income economies such as the Dominican Republic is another: the fiscal pressure due to the high amount of public debt service and the global slowdown with its consequent reduction in private investment.
The prospects for the country so far are favorable, because the growth projections for this year and the next 2024 of the Dominican Gross Domestic Product (GDP) exceed those of the world, those of the Latin American region and those of the member countries of the DR-Cafta (free trade agreement signed with Central America and the United States) and also the GDP of Panama.
However, the global system of input prices for food production, given the 90% dependence on imports in the case of agriculture; the drought due to the La Niña phenomenon, and the high interest rates of the financing to contain inflation calls for a change in public policies that stimulate the internal market, which can shield the economy.
Economists believe that the inflation goals would hardly be reached this year, which they expect to be difficult.
In fact, the low price cycle that moderated last February, according to the United Nations Food and Agriculture Organization (FAO) price report, was 12% higher than five years ago and continued to be more expensive. than before the Russian war not only vegetable oil, but also dairy and cereals.
Five days ago, the International Monetary Fund (IMF) defined the phenomenon in a tweet, as “a path down the road”, because some prices have returned to the levels of before Russia’s invasion of Ukraine. In another document, one of the IMF analysts published, in Diálogo a Fondo, a specialized magazine of the organization that collects the articles of its experts, that the Latin American region faces slower growth, which means that the slowdown of the economies is not only a fact, but it could be more pronounced. He raises the possibility of a prolonged return to central banks’ inflation targeting, in the face of inflation that is hard to subside.
However, the prolonged restrictive measures seeking to impact inflation have not yielded the expected results, more than the forecasts given on September 15, 2022, by the resigning World Bank president, David Malpass. Malpass warned that these restrictive policies assumed in the long term could affect financial stability. Today, in the United States there are two medium and small banks affected and it is assumed that others have also been infected in Europe and possibly in Argentina.
Economists from the country affirm that given the high global uncertainty, the IMF has modified its projections three times this year. According to IMF data, the Dominican economy, which grew 12.3% in 2021, and 5% in 2022, will grow 4.3% this 2023 and 5% in 2024, a higher range than the LAC region and the members of the DR-Cafta and Panama.
In general, the DR-Cafta countries together will grow 4.5% this year and 3.5% in 2024.
For Antonio Ciriaco Cruz, Dean of the UASD School of Economics, the global economy is weakening rapidly and it is predicted that the largest ones (the US and Europe) will have short-term recessions. “This will have repercussions on economic activity in the country, since it would affect the real side of the economy: less growth and less remittances and tourism from the US and Europe.
Opinion of Ciriaco Cruz
In the global economy, growth of 2.3% is expected compared to 3.3% in 2023 and the greatest weakness will be concentrated in Europe, Latin America and the Caribbean, and the US.
Global financial problems will not directly affect the national financial sector, but to the extent that they affect the real economy in the US and Europe.