Cuba Outlook for 2008-09

Forecast
May 6th 2008
From the Economist Intelligence Unit
Source: Country Forecast

Outlook for 2008-09

• Although the new president, Raul Castro, is introducing a number of reforms, the Economist Intelligence Unit expects gradual, rather than sudden, political (and economic) transformation.
• There will be no easing of tensions with the US in 2008, but some rapprochement is possible from 2009, depending on the outcome of the US presidential election in November 2008.
• The government has started to introduce a series of reforms to improve economic management, but progress will be constrained by conservatism and its commitment to full employment.
• A strategy for moving towards a single currency and single exchange rate is under way, but until this objective is achieved, the economy will continue to be plagued by dislocation and perverse incentives.
• We expect growth to moderate in 2008-09, and it will remain below potential as a result of continued US sanctions and restrictions on private investment.
• A small current-account deficit is forecast, as a widening goods trade deficit is partly offset by larger services and current-transfers surpluses.

Monthly review

• Some resented restrictions have been lifted, allowing Cubans to use facilities previously been reserved for tourists and to buy mobile phones; these reforms will make real income differences more conspicuous.
• Government officials and representatives of the intellectual community have stressed the need not only to improve economic efficiency but also to air disagreements.
• Diplomatic hostilities between Cuba and the US have flared up over US support to dissident groups.
• Cuba’s relations with the EU have remained overshadowed by differences over the application of conditions on the removal of diplomatic sanctions, while relations with Russia have strengthened.
• Reform measures have been introduced to expand opportunities for consumption and improve incentives, and more have been promised.
• The authorities’ anti-corruption drive has continued.
• No data have been published on economic performance in the first quarter, but the available information suggests that the economy has continued to grow.

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