Country Report Cuba January 2009

Summary

The Economist Intelligence Unit expects gradual, rather than sudden, political and economic change, although the president, Raul Castro, has signalled that he intends to introduce structural changes in the medium term.
Some of the US economic sanctions (on financing, travel and the sending of remittances to Cuba by Cuban-Americans) are likely to be eased following the inauguration of Barack Obama as the new US president on January 20th, but we do not expect full normalisation of economic and political relations.
There will be no radical liberalisation but the Cuban government will cautiously reform economic management through decentralisation, price adjustments and greater management accountability and material incentives.
In an effort to rein in monetary growth the government will seek to reduce the fiscal deficit to less than 4% of GDP. It will continue to work towards restoring a single currency, but until this objective is achieved dislocation and perverse incentives will impede economic efficiency.
We expect only modest improvements in living standards in 2009-10 as GDP growth weakens. The current-account deficit will narrow from 4.8% of GDP in 2008 to an average of 2.6% of GDP in 2009-10, as the trade deficit falls.

The mood was sombre at the National Assembly held at the end of December, with officials highlighting the economic difficulties of 2008 and the challenges ahead.
Amid speculation over the implications of Barack Obamas US presidency, the Cuban government has appeared wary of expecting any dramatic change in US policy.
Officials announced that the costs associated with three hurricanes had widened the fiscal deficit to 6.7% of GDP. To narrow the deficit in 2009, tax reforms and more rigorous control of expenditure are likely.
The planning minister, Jose Luis Rodriguez, announced an official estimate for GDP growth in 2008 of 4.3%. This was down from 7.3% in 2007 and around half the official forecast of 8% made in December 2007.
A leap in the goods trade deficit from US$6.4bn in 2007 to US$10.7bn in 2008 was caused mainly by higher prices of food and fuel imports and the collapse of nickel prices, which affected export earnings.
Mr Rodriguez has announced an official forecast of 6% growth in 2009. Given weak prospects for the global economy, which will hit tourism and external financing and keep nickel prices depressed, this appears overoptimistic.

This report covers the following industry codes:
SIC Code: 49;10
NAICS Code: 22;212